Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Capex negating volume growth
JSW’s EBITDA growth will pick up over FY12-13 once the Vijaynagar plant
expansion is commissioned in end-Jun. Despite this, high capex will result in
negative free cash flows and rising debt, putting pressure on equity
valuations. JSW’s next phase of growth will play out over the FY14-16 period,
but is too early to factor in. The US facilities and Ispat will remain a drag on
earnings, but there is some hope in the overseas mines with production
having finally started. We cut consol EPS 10-17% over FY12-13 and
downgrade JSW to U-PF with a target price of Rs960.
Strong earnings growth over FY12-13 but will be matched by rising debt
JSW will register strong 25% volume and 23% consol EBITDA CAGR over FY11-13
post the Vijaynagar expansion. However, consol capex will stay high resulting in
negative free cash flows over this period. As a result, JSW’s consol net debt will
rise to Rs284bn by FY13 (27% CAGR) keeping equity valuations subdued.
Next phase of growth over FY14-16 but too early to factor in
Over FY14-16, JSW will see commissioning of three projects – brownfield
expansion to 13mtpa (1QFY14), 2.3mtpa CR mill (two phases – 1QFY14 and
1QFY15) and the JSW Bengal Greenfield plant (1QFY15). JSW arguably has had
the best execution track record within the India metals space and we see a good
chance of the first two projects coming up on time but expect delays in the JSW
Bengal project. Overall, we believe that it is too early to factor in these projects.
We are also not in the camp which believes that the debt component of CWIP
needs to be excluded from total debt while valuing such companies.
US units & Ispat likely to remain a drag; mines finally starting production
Given the worsening utilization trends in the US facilities, we are not hopeful of
any improvement there. We see Ispat remaining loss-making and believe that it is
too early to assume a US$100+ EBITDA/t. A positive is that JSW has finally
started production in its Chilean iron ore and US coking coal mines and is
targeting sales of 1mt in Chile and 0.5mt in US in FY12. We have now built in
some volumes from these mines, though not to the extent that JSW is targeting.
Cutting estimates 10-17%; downgrade to U-PF
We cut FY12-13 consol EPS by 10-17% factoring in slightly lower margins, higher
capex and higher interest costs. Given limited upside, we downgrade JSW to U-PF
from O-PF with a target price of Rs960 at 6x FY13 EV/EBITDA. Valuations two
years out don’t look attractive either as debt rises further. We believe that margin
improvement is needed for JSW’s stock to perform, which will need an
improvement in convertor margins, which in turn needs global steel industry
utilization levels to rise above 90% (80-85% currently).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Capex negating volume growth
JSW’s EBITDA growth will pick up over FY12-13 once the Vijaynagar plant
expansion is commissioned in end-Jun. Despite this, high capex will result in
negative free cash flows and rising debt, putting pressure on equity
valuations. JSW’s next phase of growth will play out over the FY14-16 period,
but is too early to factor in. The US facilities and Ispat will remain a drag on
earnings, but there is some hope in the overseas mines with production
having finally started. We cut consol EPS 10-17% over FY12-13 and
downgrade JSW to U-PF with a target price of Rs960.
Strong earnings growth over FY12-13 but will be matched by rising debt
JSW will register strong 25% volume and 23% consol EBITDA CAGR over FY11-13
post the Vijaynagar expansion. However, consol capex will stay high resulting in
negative free cash flows over this period. As a result, JSW’s consol net debt will
rise to Rs284bn by FY13 (27% CAGR) keeping equity valuations subdued.
Next phase of growth over FY14-16 but too early to factor in
Over FY14-16, JSW will see commissioning of three projects – brownfield
expansion to 13mtpa (1QFY14), 2.3mtpa CR mill (two phases – 1QFY14 and
1QFY15) and the JSW Bengal Greenfield plant (1QFY15). JSW arguably has had
the best execution track record within the India metals space and we see a good
chance of the first two projects coming up on time but expect delays in the JSW
Bengal project. Overall, we believe that it is too early to factor in these projects.
We are also not in the camp which believes that the debt component of CWIP
needs to be excluded from total debt while valuing such companies.
US units & Ispat likely to remain a drag; mines finally starting production
Given the worsening utilization trends in the US facilities, we are not hopeful of
any improvement there. We see Ispat remaining loss-making and believe that it is
too early to assume a US$100+ EBITDA/t. A positive is that JSW has finally
started production in its Chilean iron ore and US coking coal mines and is
targeting sales of 1mt in Chile and 0.5mt in US in FY12. We have now built in
some volumes from these mines, though not to the extent that JSW is targeting.
Cutting estimates 10-17%; downgrade to U-PF
We cut FY12-13 consol EPS by 10-17% factoring in slightly lower margins, higher
capex and higher interest costs. Given limited upside, we downgrade JSW to U-PF
from O-PF with a target price of Rs960 at 6x FY13 EV/EBITDA. Valuations two
years out don’t look attractive either as debt rises further. We believe that margin
improvement is needed for JSW’s stock to perform, which will need an
improvement in convertor margins, which in turn needs global steel industry
utilization levels to rise above 90% (80-85% currently).
No comments:
Post a Comment