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EARNINGS REVIEW
JSW Steel (JSTL.BO)
Buy Equity Research
Above expectations; operating profit surges on realization surprise
What surprised us
JSW Steel reported 1QFY12 consolidated net income of Rs4.8 bn (+64% yoy,
-39% qoq), 5% and 4% above our expectations and BBG consensus. At the
operating level, EBITDA came in at Rs14.3 bn (+33% yoy, -14% qoq),
10% above our expectations. Top-line growth was robust, driven by
(1) higher sales volumes (+44% yoy, -1% qoq) and (2) higher average
realizations (+6% yoy, +2% qoq). While benchmark steel prices were down
3%-4% qoq, higher realizations can be attributed to improved product
mix (in favor of longs and specialty steel). EBITDA margins improved, with
EBITDA/ton at US$180 (GSe: US$170) vs. $210 in 4QFY11. The company
commenced shipments of 0.19 mn tons from Chile iron ore operations
with EBITDA of US$11.5 mn (EBITDA/ton of US$60), with FY12E guidance
of 1 mn tons. The third US coking coal mine is expected to start operations
soon, and the company expects to make 350kT of shipments to India in
FY12E. Utilizations at the US operations are improving and JSW expects this
business to break even later in the year. The 3.2 mn tpa brownfield
expansion at Vijaynagar has been completed, taking the overall capacity
to 11 mn tpa. Consolidated net debt/equity stood at 0.89X as of 1QFY12.
What to do with the stock
We reiterate our Buy and P/B-based 12m TP of Rs1,140. We believe that
JSW is attractively positioned with sector-leading FY12E volume growth
(+38% yoy vs. 15% sector average), improving upstream integration, and
leverage to steel pricing. The stock is trading at 5.7X FY12E EVEBITDA, a
7% discount to the mid-cycle of 6.1X; 20% discount to peers. Risks: Steel
demand, inability to pass through input cost pressures. We fine-tune our
FY12E-14E EPS estimates due to minor non-operating changes in our model.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
JSW Steel (JSTL.BO)
Buy Equity Research
Above expectations; operating profit surges on realization surprise
What surprised us
JSW Steel reported 1QFY12 consolidated net income of Rs4.8 bn (+64% yoy,
-39% qoq), 5% and 4% above our expectations and BBG consensus. At the
operating level, EBITDA came in at Rs14.3 bn (+33% yoy, -14% qoq),
10% above our expectations. Top-line growth was robust, driven by
(1) higher sales volumes (+44% yoy, -1% qoq) and (2) higher average
realizations (+6% yoy, +2% qoq). While benchmark steel prices were down
3%-4% qoq, higher realizations can be attributed to improved product
mix (in favor of longs and specialty steel). EBITDA margins improved, with
EBITDA/ton at US$180 (GSe: US$170) vs. $210 in 4QFY11. The company
commenced shipments of 0.19 mn tons from Chile iron ore operations
with EBITDA of US$11.5 mn (EBITDA/ton of US$60), with FY12E guidance
of 1 mn tons. The third US coking coal mine is expected to start operations
soon, and the company expects to make 350kT of shipments to India in
FY12E. Utilizations at the US operations are improving and JSW expects this
business to break even later in the year. The 3.2 mn tpa brownfield
expansion at Vijaynagar has been completed, taking the overall capacity
to 11 mn tpa. Consolidated net debt/equity stood at 0.89X as of 1QFY12.
What to do with the stock
We reiterate our Buy and P/B-based 12m TP of Rs1,140. We believe that
JSW is attractively positioned with sector-leading FY12E volume growth
(+38% yoy vs. 15% sector average), improving upstream integration, and
leverage to steel pricing. The stock is trading at 5.7X FY12E EVEBITDA, a
7% discount to the mid-cycle of 6.1X; 20% discount to peers. Risks: Steel
demand, inability to pass through input cost pressures. We fine-tune our
FY12E-14E EPS estimates due to minor non-operating changes in our model.
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