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JSW Steel ------------------------------------------------------------------- Maintain UNDERPERFORM
FY11 annual report: Acceptances increased; sharp increase in beneficiation
● We present key takeaways from the FY11 annual report.
● Acceptances are classified as current liabilities, and not included
in debt when looking at EV/EBITDA. At about Rs68 bn (US$1.5
bn, Rs300/share) in FY11, they increased by Rs18 bn YoY, but
have been US$1 bn+ since FY09. With the Vijaynagar expansion
now getting commissioned, they should impact net debt.
● With the beneficiation plant starting, use of high grade ore fell
from 80% in FY10 to 30% in FY11. Utilisation of lower grade ore
meant rise in consumption/tonne of steel by 13% YoY to 2.02 from
1.79. Thus, the average cost of procurement of Rs2,800/t
(~US$60-65/t) for JSW needs to be raised ~20% while comparing.
● Efficiency of crude production was better, but that of HR flats fell:
net net, total power consumed fell despite 7% rise in volumes (Fig
3). Despite higher internal power generation and gas recovery
(minor), cost/kwh increased and power cost per tonne of steel
sold increased US$5/t (INR appreciation also played a role).
● Our UNDERPERFORM rating is based on rising debt levels for
projects that will add to future EBITDA, and profit pressures.
JSW Steel released its FY11 annual report recently. Key takeaways:
● Should acceptances be considered as debt? Classified as
current liabilities, these are not included in debt numbers when
looking at EV/EBITDA. At about Rs68 bn (US$1.5 bn) in FY11,
they increased by Rs18 bn YoY, but have been US$1 bn+ since
FY09. With Vijaynagar expansion now getting commissioned, they
should drop and impact net debt. As they include payables linked
to capex, potential impact valuation is significant.
● Iron ore: With the beneficiation plant starting off, use of high
grade ore fell from 80% in FY10 to 30% in FY11. Utilisation of
lower grade ore meant rise in consumption/ tonne of steel by 13%
YoY to 2.02 from 1.79. Thus, the average cost of procurement of
Rs2,800/t (~US$60-65/t) for JSW needs to be raised by ~20%
when making comparisons, as the ‘normal’ ore/steel ratio is 1.7.
● Sales mix: FY11 sales mix saw more HRC (49% of volumes
versus 31% in FY10) and less slabs (Figure 1). Other value-added
products remained largely the same (Figure 1). The overall
premium to HRC price was higher than FY10 (by ~US$35) due to
higher premium realised on value-added products
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel ------------------------------------------------------------------- Maintain UNDERPERFORM
FY11 annual report: Acceptances increased; sharp increase in beneficiation
● We present key takeaways from the FY11 annual report.
● Acceptances are classified as current liabilities, and not included
in debt when looking at EV/EBITDA. At about Rs68 bn (US$1.5
bn, Rs300/share) in FY11, they increased by Rs18 bn YoY, but
have been US$1 bn+ since FY09. With the Vijaynagar expansion
now getting commissioned, they should impact net debt.
● With the beneficiation plant starting, use of high grade ore fell
from 80% in FY10 to 30% in FY11. Utilisation of lower grade ore
meant rise in consumption/tonne of steel by 13% YoY to 2.02 from
1.79. Thus, the average cost of procurement of Rs2,800/t
(~US$60-65/t) for JSW needs to be raised ~20% while comparing.
● Efficiency of crude production was better, but that of HR flats fell:
net net, total power consumed fell despite 7% rise in volumes (Fig
3). Despite higher internal power generation and gas recovery
(minor), cost/kwh increased and power cost per tonne of steel
sold increased US$5/t (INR appreciation also played a role).
● Our UNDERPERFORM rating is based on rising debt levels for
projects that will add to future EBITDA, and profit pressures.
JSW Steel released its FY11 annual report recently. Key takeaways:
● Should acceptances be considered as debt? Classified as
current liabilities, these are not included in debt numbers when
looking at EV/EBITDA. At about Rs68 bn (US$1.5 bn) in FY11,
they increased by Rs18 bn YoY, but have been US$1 bn+ since
FY09. With Vijaynagar expansion now getting commissioned, they
should drop and impact net debt. As they include payables linked
to capex, potential impact valuation is significant.
● Iron ore: With the beneficiation plant starting off, use of high
grade ore fell from 80% in FY10 to 30% in FY11. Utilisation of
lower grade ore meant rise in consumption/ tonne of steel by 13%
YoY to 2.02 from 1.79. Thus, the average cost of procurement of
Rs2,800/t (~US$60-65/t) for JSW needs to be raised by ~20%
when making comparisons, as the ‘normal’ ore/steel ratio is 1.7.
● Sales mix: FY11 sales mix saw more HRC (49% of volumes
versus 31% in FY10) and less slabs (Figure 1). Other value-added
products remained largely the same (Figure 1). The overall
premium to HRC price was higher than FY10 (by ~US$35) due to
higher premium realised on value-added products
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