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A Noisy Q2: JSW reported only standalone results (the overseas entities
results were not yet finalized and hence consolidated results would be
released later), and the associate company JSW ISPAT has also not yet
reported earnings. Reported standalone Q2PAT was significantly below
estimates (Rs1.3 bn v/s JPMe of Rs2.4bn) driven by large FXloss of
Rs5.1bn. Total FX loss was Rs10bn of which Rs5.1bn was related to
acceptances and the remaining related to debt was capitalized. Operating
earnings were ahead of JPMe for standalone at standalone EBITDA of
Rs12.96bn well ahead of the JPM and consensus estimates of Rs9.3bn. In
our view, the outperformance was driven by 2 key reasons: a strong 10%
increase in sales volume q/q (as the company liquidated steel inventory and
purchased higher quantity from Ispat) and the utilization of lower cost iron
ore inventory in the 2Q steel production (RM cost/MT increased 4% q/q).
As per company, avg. iron ore cost in the 1QFY12 was 25-30% lower than
the iron ore sourced from e-auction. We believe that the impact from this
higher cost of iron ore would flow through JSTL’s performance from
3QFY12 onwards. We are assuming 20% higher iron ore cost for FY12E.
While contract coking coal prices for the Dec quarter are lower (globally
contracts have fallen to $285/MT, ~10% q/q lower), we would highlight that
INR has depreciated broadly by the same amount and hence the P&L flow
through of the lower coking coal would be minimal.
Uncertainty on iron ore situation: JSTL management highlighted that
while the e-auction process has become regular, logistical bottlenecks and
regulatory procedures are delaying the receipt of iron ore at the plant. JSW
has received merely 18% of the total quantity procured by the Karnataka
plant. The crucial SC hearing is on 6th Nov where the EIA report and R&R
policy will be submitted. In case the court allow mines have no irregularities
and mines where minor irregularities can be rectified, this would allow
production of ~3.5MT per month and provide steady iron ore supply to the
industry in the state. However, given the ban on export from the state has
been on through Jun-10, there remains little visibility of the timeline of the
issue.
Cutting production and sales guidance: The company lowered its sales
guidance for FY12E from 9MT to 7.8MT (JPME at 7.6MT). However, the
company indicated that the guidance is based on regular auction and steady
availability of iron ore at its plant site.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A Noisy Q2: JSW reported only standalone results (the overseas entities
results were not yet finalized and hence consolidated results would be
released later), and the associate company JSW ISPAT has also not yet
reported earnings. Reported standalone Q2PAT was significantly below
estimates (Rs1.3 bn v/s JPMe of Rs2.4bn) driven by large FXloss of
Rs5.1bn. Total FX loss was Rs10bn of which Rs5.1bn was related to
acceptances and the remaining related to debt was capitalized. Operating
earnings were ahead of JPMe for standalone at standalone EBITDA of
Rs12.96bn well ahead of the JPM and consensus estimates of Rs9.3bn. In
our view, the outperformance was driven by 2 key reasons: a strong 10%
increase in sales volume q/q (as the company liquidated steel inventory and
purchased higher quantity from Ispat) and the utilization of lower cost iron
ore inventory in the 2Q steel production (RM cost/MT increased 4% q/q).
As per company, avg. iron ore cost in the 1QFY12 was 25-30% lower than
the iron ore sourced from e-auction. We believe that the impact from this
higher cost of iron ore would flow through JSTL’s performance from
3QFY12 onwards. We are assuming 20% higher iron ore cost for FY12E.
While contract coking coal prices for the Dec quarter are lower (globally
contracts have fallen to $285/MT, ~10% q/q lower), we would highlight that
INR has depreciated broadly by the same amount and hence the P&L flow
through of the lower coking coal would be minimal.
Uncertainty on iron ore situation: JSTL management highlighted that
while the e-auction process has become regular, logistical bottlenecks and
regulatory procedures are delaying the receipt of iron ore at the plant. JSW
has received merely 18% of the total quantity procured by the Karnataka
plant. The crucial SC hearing is on 6th Nov where the EIA report and R&R
policy will be submitted. In case the court allow mines have no irregularities
and mines where minor irregularities can be rectified, this would allow
production of ~3.5MT per month and provide steady iron ore supply to the
industry in the state. However, given the ban on export from the state has
been on through Jun-10, there remains little visibility of the timeline of the
issue.
Cutting production and sales guidance: The company lowered its sales
guidance for FY12E from 9MT to 7.8MT (JPME at 7.6MT). However, the
company indicated that the guidance is based on regular auction and steady
availability of iron ore at its plant site.
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