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Existing iron ore inventory sufficient for just 2 months’ production: Iron ore
availability turned precarious in Karnataka over the last one month due to
exhaustion of ore stocks, sharp grade slippage and production issues at NMDC.
The iron ore volumes sold under auction dipped from an average of 3m
tonnes/month to 1.2m during February 2012. With this backdrop, JSTL has an
inventory of ~4m tonnes, sufficient to sustain two month’s production. We
believe that utilisations could fall below 75%, provided operations are not
restored at the closed mines as the remaining stocks of 6m tonnes would last till
June 2012.
Smooth restoration of B‐category mines holds the key: Central Empowered
Committee (CEC) recommended instant restoration of operations at 19 mines
(excluding NMDC’s two operational mines) classified under Category-A with
production potential of 5mtpa (12mtpa including NMDC’s 7mtpa). CEC has also
recommended for limiting the total mining in the state at 30mtpa. This suggests
production of ~18mtpa from 72 mines under Category-B. However, we see high
risks to production from these mines, given the stringent conditions laid out by
CEC regarding R&R obligations. Nevertheless, we assume 85% utilisation in FY13.
Turnaround in JSW‐Ispat still far away: We expect the entity to post loss of Rs6-
6.5bn in FY13 as well as FY14 on the backdrop of compressed utilisation levels at
75% due to shortage of natural gas (NG), highly leveraged balance sheet with
debt of Rs70bn and weak realisations attributed to over-supply in the flats.
Valuation and outlook: We maintain our negative outlook on the stock, with the
underlying earnings risk associated with availability of iron ore and expensive
valuations given the abnormal exposure to acceptances (shown in current
liabilities) unlike its peers, TATA and SAIL. We value the stock at Rs745,
EV/EBITDA of 5.5x FY13E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Existing iron ore inventory sufficient for just 2 months’ production: Iron ore
availability turned precarious in Karnataka over the last one month due to
exhaustion of ore stocks, sharp grade slippage and production issues at NMDC.
The iron ore volumes sold under auction dipped from an average of 3m
tonnes/month to 1.2m during February 2012. With this backdrop, JSTL has an
inventory of ~4m tonnes, sufficient to sustain two month’s production. We
believe that utilisations could fall below 75%, provided operations are not
restored at the closed mines as the remaining stocks of 6m tonnes would last till
June 2012.
Smooth restoration of B‐category mines holds the key: Central Empowered
Committee (CEC) recommended instant restoration of operations at 19 mines
(excluding NMDC’s two operational mines) classified under Category-A with
production potential of 5mtpa (12mtpa including NMDC’s 7mtpa). CEC has also
recommended for limiting the total mining in the state at 30mtpa. This suggests
production of ~18mtpa from 72 mines under Category-B. However, we see high
risks to production from these mines, given the stringent conditions laid out by
CEC regarding R&R obligations. Nevertheless, we assume 85% utilisation in FY13.
Turnaround in JSW‐Ispat still far away: We expect the entity to post loss of Rs6-
6.5bn in FY13 as well as FY14 on the backdrop of compressed utilisation levels at
75% due to shortage of natural gas (NG), highly leveraged balance sheet with
debt of Rs70bn and weak realisations attributed to over-supply in the flats.
Valuation and outlook: We maintain our negative outlook on the stock, with the
underlying earnings risk associated with availability of iron ore and expensive
valuations given the abnormal exposure to acceptances (shown in current
liabilities) unlike its peers, TATA and SAIL. We value the stock at Rs745,
EV/EBITDA of 5.5x FY13E.
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