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● Around 400 kt of iron ore was sold in the first auction yesterday in
Karnataka. At least three e-auctions per week are expected.
● JSW procured 108 kt (27% of total), mainly 63%-plus grade fines.
Expected landed price according to JSW is Rs3,600/t. This
implies only a 3% premium to notified price versus media reports
of 25–30%. If media reports are correct and future auctions have
similar prices, landed price could be as high as Rs4,100/t.
● Using the company’s number, we expect blended prices to reach
Rs3,600/t, up from Rs3,200/t currently in our model. This can
reduce EBITDA/T by $15/t. If market prices are as reported by the
media, there could be a further negative impact of $8/t.
● With 35 kt/day procurement, JSW can operate at ~70% utilisation
levels. To achieve the FY12 guidance of 8.75 mt of crude steel
production, JSW needs to produce at 90% utilisation, which would
require 50 kt/day of iron ore. To achieve our volume target, they
would require 45 kt/day—this also could have a downside. With
downside expected to our volume and EBITDA/t estimates, we
maintain our target price of Rs550 and UNDERPERFORM rating.
Iron ore e-auctions raise procurement prices for JSW
Following the Supreme Court order of allowing 1.5 mn t/month of iron
ore e-auctions in Karnataka, 400 kt of iron ore was sold in the first
auction yesterday. An auction is expected every Wednesday going
forward, with at least three every month.
JSW procured 108 kt (27% of total), mainly 63%-plus grade fines.
Expected landed price according to the company is Rs3,600/t. This
implies only a 3% premium to notified price versus media reports of
25–30%. If media reports are correct, and future auctions have similar
prices, landed price could be as high as Rs4,100/t, including royalties,
forest development tax and freight.
Using the company’s number, we expect blended prices to reach
Rs3,600/t (Figure 1), up from Rs3,200/t currently in our model. This
can reduce EBITDA/t by $15. If market prices are as reported by the
media, there could be a further negative impact of $8/t.
Volumes should improve, but achieving guidance or CS
estimates seems difficult
With 35 kt/day procurement, JSW can operate at ~70% utilisation
levels. To achieve the FY12 guidance of 8.75 mt of crude steel
production, JSW needs to produce at 90% utilisation in the remaining
seven months, which would require 50 kt/day of iron ore. This seems
difficult, especially with September volumes expected to be weak.
CS’ FY12 estimates are for 8.3 mt of crude production, which would
require 45 kt/day in the remaining seven months—this also could have
a downside.
With downside expected to our volume and EBITDA/t estimates, we
maintain our target price of Rs550 and UNDERPERFORM rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Around 400 kt of iron ore was sold in the first auction yesterday in
Karnataka. At least three e-auctions per week are expected.
● JSW procured 108 kt (27% of total), mainly 63%-plus grade fines.
Expected landed price according to JSW is Rs3,600/t. This
implies only a 3% premium to notified price versus media reports
of 25–30%. If media reports are correct and future auctions have
similar prices, landed price could be as high as Rs4,100/t.
● Using the company’s number, we expect blended prices to reach
Rs3,600/t, up from Rs3,200/t currently in our model. This can
reduce EBITDA/T by $15/t. If market prices are as reported by the
media, there could be a further negative impact of $8/t.
● With 35 kt/day procurement, JSW can operate at ~70% utilisation
levels. To achieve the FY12 guidance of 8.75 mt of crude steel
production, JSW needs to produce at 90% utilisation, which would
require 50 kt/day of iron ore. To achieve our volume target, they
would require 45 kt/day—this also could have a downside. With
downside expected to our volume and EBITDA/t estimates, we
maintain our target price of Rs550 and UNDERPERFORM rating.
Iron ore e-auctions raise procurement prices for JSW
Following the Supreme Court order of allowing 1.5 mn t/month of iron
ore e-auctions in Karnataka, 400 kt of iron ore was sold in the first
auction yesterday. An auction is expected every Wednesday going
forward, with at least three every month.
JSW procured 108 kt (27% of total), mainly 63%-plus grade fines.
Expected landed price according to the company is Rs3,600/t. This
implies only a 3% premium to notified price versus media reports of
25–30%. If media reports are correct, and future auctions have similar
prices, landed price could be as high as Rs4,100/t, including royalties,
forest development tax and freight.
Using the company’s number, we expect blended prices to reach
Rs3,600/t (Figure 1), up from Rs3,200/t currently in our model. This
can reduce EBITDA/t by $15. If market prices are as reported by the
media, there could be a further negative impact of $8/t.
Volumes should improve, but achieving guidance or CS
estimates seems difficult
With 35 kt/day procurement, JSW can operate at ~70% utilisation
levels. To achieve the FY12 guidance of 8.75 mt of crude steel
production, JSW needs to produce at 90% utilisation in the remaining
seven months, which would require 50 kt/day of iron ore. This seems
difficult, especially with September volumes expected to be weak.
CS’ FY12 estimates are for 8.3 mt of crude production, which would
require 45 kt/day in the remaining seven months—this also could have
a downside.
With downside expected to our volume and EBITDA/t estimates, we
maintain our target price of Rs550 and UNDERPERFORM rating.
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