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JSW Steel
Neutral
JSTL.BO, JSTL IN
Higher volumes drive earnings beat; Capex ramped
up significantly
• Result beat driven by higher volumes: JSW reported consolidated EBITDA at
Rs16.6bn (+64% q/q) v/s JPMe of Rs15.8bn and PAT of Rs7.2bn (+156%
q/q) v/s JPMe PAT of Rs6.6bn. The beat came mainly on account of higher
than expected steel volumes (Q4 sales volumes at 1.73MT, +9% q/q). While
JSW indicated the high volumes were driven by geographical re-jigging post
ISPAT acquisition, with JSW purchasing steel from ISPAT to cater to nearby
markets, we believe higher exports were also key, given exports (value)
increased 54% q/q and accounted for 16% of total revenues in Q4 v/s 13%
in Q3. Standalone EBITDA stood at $212/MT in line with our estimate of
$210/MT. Steel ASP increased 12% q/q (Rs4543/MT) and in our view was
also driven by the higher share of flats. Given the tough steel market with slow
demand, we find JSW's volume growth and ASP increase impressive. In our
view JSW has also benefited from the recent Karnataka iron ore situation (JSW
indicated blended iron ore cost of Rs2800/MT) given the ramp up of
beneficiation plants which have reduced the need to purchase lumps and instead
use lower-grade iron ore fines. The US operations had a PAT loss of $16mn for
the quarter (FY11 loss at $50mn). JSW in the analyst meet indicated that the
June quarter result would not see the full impact of the $330/MT contract,
as the previous quarter's coking coal contract would last until end May.
However, steel prices have declined from March levels and thus we believe
EBITDA/MT should decline from here.
• FY12 volumes guidance of 9MT, implying 48% y/y increase: With the
3.2MT BF slated for commissioning in Q1FY12E, JSW has given volume
guidance of 9MT, which includes some purchased steel from ISPAT, which we
estimate at ~0.5MT. JSW indicated that exports of HRC volumes would also
pick up, with import substitution and domestic demand driving the sales
increase. We believe this is an aggressive growth target, with new capacities
from Essar and TATA to hit the markets over the next 12 months. Our
current sales volumes estimate for FY12E for JSW is 8.2MT.
• Capex details on new project: JSW announced a 2MT brownfield expansion at
Vijaynagar with a capex of Rs27bn, which is expected to be commissioned by
Jun-2013. The expansion is through the EAF route (DRI-based). This is the
fourth large investment announced by the company recently (others being
Rs160bn West Bengal project in Oct-10, Ispat acquisition in Dec-10 and Rs40bn
CRM complex capex in Jan-11). JSW expects to incur capex of Rss80bn in
FY12E and expects total capex of Rs150bn over the next 3 quarters (including
JSW Bengal).
• Details on ISPAT: JSW did not give many details on the sharp q/q
improvement in EBITDA at ISPAT (NR), which reported Q4 EBITDA at
$105/MT. However JSW highlighted that ISPAT could see further cost
reduction as iron ore sourcing is done from Karnataka and power is purchased
from Jindal Stainless (NR). JSW did indicate that current gas availability issues
could possibly impact production in the very near term
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel
Neutral
JSTL.BO, JSTL IN
Higher volumes drive earnings beat; Capex ramped
up significantly
• Result beat driven by higher volumes: JSW reported consolidated EBITDA at
Rs16.6bn (+64% q/q) v/s JPMe of Rs15.8bn and PAT of Rs7.2bn (+156%
q/q) v/s JPMe PAT of Rs6.6bn. The beat came mainly on account of higher
than expected steel volumes (Q4 sales volumes at 1.73MT, +9% q/q). While
JSW indicated the high volumes were driven by geographical re-jigging post
ISPAT acquisition, with JSW purchasing steel from ISPAT to cater to nearby
markets, we believe higher exports were also key, given exports (value)
increased 54% q/q and accounted for 16% of total revenues in Q4 v/s 13%
in Q3. Standalone EBITDA stood at $212/MT in line with our estimate of
$210/MT. Steel ASP increased 12% q/q (Rs4543/MT) and in our view was
also driven by the higher share of flats. Given the tough steel market with slow
demand, we find JSW's volume growth and ASP increase impressive. In our
view JSW has also benefited from the recent Karnataka iron ore situation (JSW
indicated blended iron ore cost of Rs2800/MT) given the ramp up of
beneficiation plants which have reduced the need to purchase lumps and instead
use lower-grade iron ore fines. The US operations had a PAT loss of $16mn for
the quarter (FY11 loss at $50mn). JSW in the analyst meet indicated that the
June quarter result would not see the full impact of the $330/MT contract,
as the previous quarter's coking coal contract would last until end May.
However, steel prices have declined from March levels and thus we believe
EBITDA/MT should decline from here.
• FY12 volumes guidance of 9MT, implying 48% y/y increase: With the
3.2MT BF slated for commissioning in Q1FY12E, JSW has given volume
guidance of 9MT, which includes some purchased steel from ISPAT, which we
estimate at ~0.5MT. JSW indicated that exports of HRC volumes would also
pick up, with import substitution and domestic demand driving the sales
increase. We believe this is an aggressive growth target, with new capacities
from Essar and TATA to hit the markets over the next 12 months. Our
current sales volumes estimate for FY12E for JSW is 8.2MT.
• Capex details on new project: JSW announced a 2MT brownfield expansion at
Vijaynagar with a capex of Rs27bn, which is expected to be commissioned by
Jun-2013. The expansion is through the EAF route (DRI-based). This is the
fourth large investment announced by the company recently (others being
Rs160bn West Bengal project in Oct-10, Ispat acquisition in Dec-10 and Rs40bn
CRM complex capex in Jan-11). JSW expects to incur capex of Rss80bn in
FY12E and expects total capex of Rs150bn over the next 3 quarters (including
JSW Bengal).
• Details on ISPAT: JSW did not give many details on the sharp q/q
improvement in EBITDA at ISPAT (NR), which reported Q4 EBITDA at
$105/MT. However JSW highlighted that ISPAT could see further cost
reduction as iron ore sourcing is done from Karnataka and power is purchased
from Jindal Stainless (NR). JSW did indicate that current gas availability issues
could possibly impact production in the very near term
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