Annual Report Analysis - JSW Steel :: Edelweiss PDF link

JSW Steel’s (JSW) FY12 annual report highlights another year in which operating cash flows was primarily supported by an increase in acceptances and higher bill discounting. Significant un-hedged payable position led to major forex loss of INR13.2bn, of which INR4.9bn has been capitalised while INR8.3 bn has been expensed off as exceptional; of this, forex loss of INR7.0bn has been realised. We are of the view that forex losses incurred on unhedged acceptances and creditors to the extent of interest rate differential between domestic and the foreign cost of funds should logically be considered as part of normal profitability.

��

Acceptances continue to drive operating cash flow

In continuation to our highlights in FY09 and FY11 annual report analysis, operating cash flow during FY12 again continued to be driven primarily by an increase in acceptances. Acceptances since an interest bearing liability will impact EV/EBITDA valuation and ROCE if not adjusted appropriately. The classification of acceptances under trade payables in the annual report is in line with revised schedule-VI requirements.

PAT dip cushioned by prior period tax adjustments

Effective tax rate for FY12 is at 25.1% (FY11: 31.9%), primarily on account of recognition of MAT credit entitlement of INR6.9bn, of which INR2.5bn (47.2% of the reported PAT) pertains to the earlier years.

Refinancing FCCBs to increase interest cost

Refinancing of FCCBs worth USD392mn (matured during June 2012) will lead to higher interest costs through P&L. Our calculation suggests that the cash cost of borrowing through FCCBs was 15.5%.

Unhedged payables led to significant forex loss

JSW had a significant unhedged forex payable position of INR152.8bn which led to forex loss of INR13.2bn. Of this, INR8.3bn is being treated as exceptional while INR4.9 bn has been capitalised. CF reveals that out of INR8.3bn forex loss, INR7.0bn has been realised. 

Provisioning at JSW ISPAT impacts FY12 PAT 

During FY12, JSW Ispat has recognised exceptional losses (of which, JSW’s share is INR7.1bn). Overdue debtors of INR2.6bn from Peddar Realty towards sale consideration of landed property along with interest remain unprovided for. Associate’s share of losses for FY12 before exceptional losses stands at INR2.3bn.

Analysis Beyond Consensus - Annual Report Analysis - JSW Steel

Regards,