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JSW Steel Ltd (JSTL)
N(V): 1Q12 results – better, but priced in
Standalone EBITDA at INR13.9bn above expectations as
both realizations and costs surprise
High Chinese steel production, weak India steel consumption
amid high capacity addition remains an overhang
Stock currently discounts positives; remain N(V) with TP
of INR950
Strong results despite domestic headwinds. JSW reported standalone EBITDA of
INR13.9bn (+35%y-o-y/ -14% q-o-q) vs our expectation of INR13bn as both realizations
and costs surprised. Volumes at 1.7mt (+44% y-o-y) despite a 7% y-o-y growth in crude
steel production were aided by procurement of 159kt of hot rolled coil from Ispat
Industries. The growth in volumes was impressive given JPC’s 1Q12 India Steel
Consumption growth numbers of a meagre 1-1.5% and hence sustainability could be an
issue in the event that steel consumption continues to remain sluggish. Realizations at
INR41.2k were up 5% y-o-y despite weakness in the domestic HRC market, partly due to
realignment of its product mix to include a 30% y-o-y growth in long product sales.
Domestic long product prices were up c5% y-o-y (29% q-o-q) as against flat product
prices which were flattish. Raw material costs were up only 3% and average cost per ton
was up only 5% due to higher use of low cost sinter feed (see details in Exhibit1).
During the quarter, JSW shipped 0.19mt of iron ore from its mine in Chile, which
contributed USD11.53m (INR515m) to consolidated EBITDA. Consolidated EBITDA
stood at INR14.3bn (+64% y-o-y/ -39% q-o-q), implying an INR106m loss at the US plate
operations (see Exhibit 2). JSW has upped utilization at its plate mill to 22%. The
company expects to ship 350kt of coking coal from its US mines this FY, starting August
2011. The mines are expected to operate at a cash cost of USD220/t which implies a
USD80/t EBITDA contribution at the current market price of USD300/t.
JSW commenced operations at its 3.2mtpa blast furnace-4 and Sinter Plant-4 on 20
th
July.
The company plans to produce 2.2mt of crude steel from the new unit over the next 3
quarters. We build in finished steel volumes of 8.6mt for FY12, an incremental 2.5mt over
FY11 and include 2mt from the new capacity.
Stay N(V) with TP of INR950. We value JSW Steel on FY12e EV/EBITDA of 5.5x and
derive a TP of INR950. We rate JSTL N(V). Higher (lower) than expected steel prices and
lower(higher) than expected raw material prices form upside(downside) risks to our
earnings estimates. Other key risks include timely commissioning of raw material projects
and turnaround of ISPAT
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel Ltd (JSTL)
N(V): 1Q12 results – better, but priced in
Standalone EBITDA at INR13.9bn above expectations as
both realizations and costs surprise
High Chinese steel production, weak India steel consumption
amid high capacity addition remains an overhang
Stock currently discounts positives; remain N(V) with TP
of INR950
Strong results despite domestic headwinds. JSW reported standalone EBITDA of
INR13.9bn (+35%y-o-y/ -14% q-o-q) vs our expectation of INR13bn as both realizations
and costs surprised. Volumes at 1.7mt (+44% y-o-y) despite a 7% y-o-y growth in crude
steel production were aided by procurement of 159kt of hot rolled coil from Ispat
Industries. The growth in volumes was impressive given JPC’s 1Q12 India Steel
Consumption growth numbers of a meagre 1-1.5% and hence sustainability could be an
issue in the event that steel consumption continues to remain sluggish. Realizations at
INR41.2k were up 5% y-o-y despite weakness in the domestic HRC market, partly due to
realignment of its product mix to include a 30% y-o-y growth in long product sales.
Domestic long product prices were up c5% y-o-y (29% q-o-q) as against flat product
prices which were flattish. Raw material costs were up only 3% and average cost per ton
was up only 5% due to higher use of low cost sinter feed (see details in Exhibit1).
During the quarter, JSW shipped 0.19mt of iron ore from its mine in Chile, which
contributed USD11.53m (INR515m) to consolidated EBITDA. Consolidated EBITDA
stood at INR14.3bn (+64% y-o-y/ -39% q-o-q), implying an INR106m loss at the US plate
operations (see Exhibit 2). JSW has upped utilization at its plate mill to 22%. The
company expects to ship 350kt of coking coal from its US mines this FY, starting August
2011. The mines are expected to operate at a cash cost of USD220/t which implies a
USD80/t EBITDA contribution at the current market price of USD300/t.
JSW commenced operations at its 3.2mtpa blast furnace-4 and Sinter Plant-4 on 20
th
July.
The company plans to produce 2.2mt of crude steel from the new unit over the next 3
quarters. We build in finished steel volumes of 8.6mt for FY12, an incremental 2.5mt over
FY11 and include 2mt from the new capacity.
Stay N(V) with TP of INR950. We value JSW Steel on FY12e EV/EBITDA of 5.5x and
derive a TP of INR950. We rate JSTL N(V). Higher (lower) than expected steel prices and
lower(higher) than expected raw material prices form upside(downside) risks to our
earnings estimates. Other key risks include timely commissioning of raw material projects
and turnaround of ISPAT
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