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JSW Steel (JSTL.BO)
Buy Equity Research
Above expectations: Strong profitability, progress on integration
What surprised us
JSW Steel reported 4QFY11 consolidated net income of Rs7.9bn (+30% yoy,
+172% qoq), 36% above our and Reuters consensus expectations. At the
operating level, EBITDA came in at Rs16.6bn (+26% yoy, +64% qoq), about 20%
ahead of our expectations. Top-line growth was robust, driven by (1) record
sales volumes (+9% qoq); and (2) higher average realisations (+12% qoq).
EBITDA margins improved 600bp qoq with EBITDA/ton at US$210 (GSe:
US$200) vs. US$140 in 3QFY11. Iron ore mining in Chile and coking coal
mines in the US commenced operations in 4QFY11, according to the press
release. In the first quarter following its acquisition, Ispat Industries has turned
into the black (with utilization at 88%, EBITDA of Rs4.1bn, and PAT of Rs0.7bn),
with JSW’s stake at 49.3% post the completion of the open offer. The company
expects its new furnace at Vijaynagar to be commissioned by June 2011, and
the Board has approved a capex plan to hike capacity by another 2mn tpa at
Vijaynagar. Net debt/equity for the consolidated entity stood at 0.84X.
What to do with the stock
We lower our FY12-13E EPS by 14%/10% on lower utilization at its US facility
and after factoring in the revised capex plans in India. We revise our 12m P/Bbased target price to Rs1,140 (from Rs1,151) to reflect lower BVPS. We reiterate
our Buy rating on attractive valuations. We believe that JSW is attractively
positioned with sector-leading FY12E volume growth (+37% yoy vs. 15% sector
avg), improving upstream integration, and leverage to steel pricing. The stock is
trading at 1.1X FY12E P/B with a 12% ROE vs. 17% sector avg. Risks: Delays in
project execution, steel demand, inability to pass through input cost pressures
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel (JSTL.BO)
Buy Equity Research
Above expectations: Strong profitability, progress on integration
What surprised us
JSW Steel reported 4QFY11 consolidated net income of Rs7.9bn (+30% yoy,
+172% qoq), 36% above our and Reuters consensus expectations. At the
operating level, EBITDA came in at Rs16.6bn (+26% yoy, +64% qoq), about 20%
ahead of our expectations. Top-line growth was robust, driven by (1) record
sales volumes (+9% qoq); and (2) higher average realisations (+12% qoq).
EBITDA margins improved 600bp qoq with EBITDA/ton at US$210 (GSe:
US$200) vs. US$140 in 3QFY11. Iron ore mining in Chile and coking coal
mines in the US commenced operations in 4QFY11, according to the press
release. In the first quarter following its acquisition, Ispat Industries has turned
into the black (with utilization at 88%, EBITDA of Rs4.1bn, and PAT of Rs0.7bn),
with JSW’s stake at 49.3% post the completion of the open offer. The company
expects its new furnace at Vijaynagar to be commissioned by June 2011, and
the Board has approved a capex plan to hike capacity by another 2mn tpa at
Vijaynagar. Net debt/equity for the consolidated entity stood at 0.84X.
What to do with the stock
We lower our FY12-13E EPS by 14%/10% on lower utilization at its US facility
and after factoring in the revised capex plans in India. We revise our 12m P/Bbased target price to Rs1,140 (from Rs1,151) to reflect lower BVPS. We reiterate
our Buy rating on attractive valuations. We believe that JSW is attractively
positioned with sector-leading FY12E volume growth (+37% yoy vs. 15% sector
avg), improving upstream integration, and leverage to steel pricing. The stock is
trading at 1.1X FY12E P/B with a 12% ROE vs. 17% sector avg. Risks: Delays in
project execution, steel demand, inability to pass through input cost pressures
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