JSW Steel Q2 FY11 results below estimates :: UBS

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JSW Steel
Q2 FY11 results below estimates
􀂄 Pre-ex PAT marginally below UBS estimate on higher costs, lower revenue
JSW Steel’s standalone pre-ex PAT of Rs3.1bn (-31% YoY, -11% QoQ) was
below our forecast of Rs3.6bn. Reported PAT was higher at Rs.4.5bn due to
Rs1.6bn of forex gains. EBITDA at Rs9.3bn (-14% YoY, -3% QoQ) was below
our forecast of Rs10bn. Net sales of Rs57.1bn were below our estimate of
Rs57.5bn. Consolidated PAT for Q2 FY11 was Rs3.7bn (pre-ex PAT was
Rs2.9bn). Average selling prices (ASPs) declined 7% QoQ (in line) to Rs36,089/t.
Volumes at 1.58mt were marginally below our estimate of 1.60mt.
􀂄 Leverage reduced significantly post JFE investment
Consolidated net debt/equity declined to 0.8x (vs. 1.6x in Q1 FY11) due to debt
repayments of Rs.23.3bn. JSW has issued 32m shares to JFE for Rs48bn (JFE has
a 14.61% stake in JSW). The promoters have injected Rs5.29bn (25% upfront
payment) towards 18m warrants issued to them (Rs1,210/share). Net debt is at
Rs121.88bn. JSW expects Rs24.88bn in further equity injections over the next two
years.
􀂄 Expansion plans on track; board approves 4.5mt Bengal expansion
The 3.2mt brownfield expansion at Vijaynagar appears on track for March 2011.
The board has approved the 4.5mtpa West Bengal steel plant (capex of Rs160bn, to
be commissioned by March 2014 and funded in a debt/equity ratio of 2:1). JSW
plans to invest approximately Rs53bn. The company forecasts capex of
Rs75bn/Rs15bn for FY11/FY12 (excluding JSW Bengal capex). We plan to revisit
our estimates for JSW.
􀂄 Valuation: maintain Neutral rating, price target of Rs1,200.00
We value JSW Steel on a sum-of-the-parts basis with the core business at a midcycle
multiple of 6.7x EV/EBITDA using normalised standalone EBITDA.