Volumes surprise positively, maintain buy
JSW Steel (JSTL) reported strong operational performance yet again despite tough market conditions with ~11% QoQ growth in consolidated revenues to Rs98.5bn on account of robust sales volume of 2.4MT (higher than our expectation of 2.2 MT). Cons. EBITDA stood at ~Rs17.3bn (margin of ~17.6% vs our expectation of 17.1%) and standalone EBITDA/tonne stood at ~Rs6810/tonne (up by 14% QoQ). Better flat product sales, highest ever export volumes and aggressive marketing led to volume outperformance but realizations remained flat QoQ due to subdued demand. JSTL has indicated an increase in iron ore availability going ahead, further reduction in costs of coking coal and sounded aggressive volume guidance of 9.75MT for FY14E. We revise our volumes estimates upwards to factor in the strong operational capabilities of the company and improving iron ore situation in Karnataka. Maintain buy with an upward revised target of Rs924.
Volumes surprise positively: Sales volumes stood at 2.4MT, up ~5% YoY and 12% QoQ, supported by better product mix, aggressive marketing and higher flat product volumes, up 15% QoQ at 1.9MT. Realizations remained flat QoQ as domestic demand was subdued. Export stood at robust 0.64MT (+46% YoY,+67% QoQ). Inventory stood at 0.57 MT at FY13 end
EBITDA margin in line: Robust volumes and lower raw material costs (coking coal down by ~10% QoQ) led to standalone EBITDA margin of 17.9% (up by 220bps QoQ). JSW optimized its blending of coal for coke making and also increased waste heat utilization which helped in improving margins despite low quality and high cost iron ore
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JSW Steel (JSTL) reported strong operational performance yet again despite tough market conditions with ~11% QoQ growth in consolidated revenues to Rs98.5bn on account of robust sales volume of 2.4MT (higher than our expectation of 2.2 MT). Cons. EBITDA stood at ~Rs17.3bn (margin of ~17.6% vs our expectation of 17.1%) and standalone EBITDA/tonne stood at ~Rs6810/tonne (up by 14% QoQ). Better flat product sales, highest ever export volumes and aggressive marketing led to volume outperformance but realizations remained flat QoQ due to subdued demand. JSTL has indicated an increase in iron ore availability going ahead, further reduction in costs of coking coal and sounded aggressive volume guidance of 9.75MT for FY14E. We revise our volumes estimates upwards to factor in the strong operational capabilities of the company and improving iron ore situation in Karnataka. Maintain buy with an upward revised target of Rs924.
Volumes surprise positively: Sales volumes stood at 2.4MT, up ~5% YoY and 12% QoQ, supported by better product mix, aggressive marketing and higher flat product volumes, up 15% QoQ at 1.9MT. Realizations remained flat QoQ as domestic demand was subdued. Export stood at robust 0.64MT (+46% YoY,+67% QoQ). Inventory stood at 0.57 MT at FY13 end
EBITDA margin in line: Robust volumes and lower raw material costs (coking coal down by ~10% QoQ) led to standalone EBITDA margin of 17.9% (up by 220bps QoQ). JSW optimized its blending of coal for coke making and also increased waste heat utilization which helped in improving margins despite low quality and high cost iron ore
Analyst meet highlights and earnings revision: JSW gave a strong guidance for sales volumes of 9.75 MT for FY14E. Iron ore supply situation is improving slowly in Karnataka and JSW expects ~20 MT of iron ore production in FY14E in Karnataka. Supply of low grade dumps is expected to be 6-7 MT. JSW commissioned several projects including beneficiation, increase in color coated capacity at Vasind and Tarapur and HSM-2 capacity enhancement. The company’s focus is on commissioning of value added steel product facilities in the next two years with the addition of a new CR mill of 2.3 mtpa and capex guidance for FY14E stands at Rs50bn. We revise our volume estimates upwards by 2.8%/3.5% for FY14E/15E to 9.1MT/9.4MT respectively. We revise our realizations estimates lower to factor in fall in steel prices and see marginal upward revision for our EBITDA estimates due to higher volumes.
Valuations – attractive, maintain buy: We like the operations of the company with low conversion cost and superior marketing team which provide confidence on volumes as iron ore situation improves further in Karnataka. We remain concerned on the increased debt exposure post merger with JSW Ispat but also see benefits of Ispat’s accumulated losses for the group over the next few years. We continue to value the proposed merged entity at 5.5x FY15E EV/EBITDA and revise our target price upwards to Rs924 from Rs882 earlier. Maintain Buy.
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