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Utilisation at 80% on improved iron ore supplies – expect rated production from December
Action: Buy on improving iron ore supplies, lower coal prices
JSW Steel stock has rebounded from lows on improved iron ore supplies
and capacity utilisation increasing to 70-80%. At the same time, we expect
the company to benefit from a decline in coking coal prices. Although JSW
ISPAT operations remain a concern, we see additional support to earnings
with the US plates and pipes operations showing a turnaround and
Chilean iron ore mines in ramp-up mode. We maintain our Buy rating, but
lower our TP to INR739.
Catalysts: improving utilisation and mining resumption in Karnataka
The Supreme Court’s decision to restart mining operations in Karnataka
will be a key trigger, along with improving capacity utilisation.
Valuation:
Despite rebounding from recent lows, the stock is trading at 6.6x FY13F
P/E and 4.6x FY13F EV/EBITDA. We expect 19% EBITDA growth in both
FY13F and FY14F on account of production ramp-up. We believe the
current price does not yet fully reflect the benefit of improved production.
We value the stock at 5x FY13F consolidated EBITDA at INR728. We
value its 4.75% stake in JSW Energy at INR11/share and its 49.3%
stake in JSW ISPAT at 5x FY13F EBITDA at an EV of INR68.6bn
contributing INR0.4 to our target price.
We reduce our FY12F earnings estimates by 25% (adj. for forex losses)
and 17.8% for FY13F on lower steel price estimates. We also lower our
target multiple to 5x from 5.5x on global macro headwinds which would
not allow any material improvement in the steel cycle in the near term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Utilisation at 80% on improved iron ore supplies – expect rated production from December
Action: Buy on improving iron ore supplies, lower coal prices
JSW Steel stock has rebounded from lows on improved iron ore supplies
and capacity utilisation increasing to 70-80%. At the same time, we expect
the company to benefit from a decline in coking coal prices. Although JSW
ISPAT operations remain a concern, we see additional support to earnings
with the US plates and pipes operations showing a turnaround and
Chilean iron ore mines in ramp-up mode. We maintain our Buy rating, but
lower our TP to INR739.
Catalysts: improving utilisation and mining resumption in Karnataka
The Supreme Court’s decision to restart mining operations in Karnataka
will be a key trigger, along with improving capacity utilisation.
Valuation:
Despite rebounding from recent lows, the stock is trading at 6.6x FY13F
P/E and 4.6x FY13F EV/EBITDA. We expect 19% EBITDA growth in both
FY13F and FY14F on account of production ramp-up. We believe the
current price does not yet fully reflect the benefit of improved production.
We value the stock at 5x FY13F consolidated EBITDA at INR728. We
value its 4.75% stake in JSW Energy at INR11/share and its 49.3%
stake in JSW ISPAT at 5x FY13F EBITDA at an EV of INR68.6bn
contributing INR0.4 to our target price.
We reduce our FY12F earnings estimates by 25% (adj. for forex losses)
and 17.8% for FY13F on lower steel price estimates. We also lower our
target multiple to 5x from 5.5x on global macro headwinds which would
not allow any material improvement in the steel cycle in the near term.
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