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JSW Steel Neutral
JSTL.BO, JSTL IN
Export increase drives in-line earnings; positive news
flow on overseas subs
Exports increased for the second consecutive quarter to Rs13.4bn (+98% y/y,
+15% q/q) and accounted for 18% of sales, as JSW looks to overseas markets
to offset the domestic demand weakness. JSTL confirmed our thesis that long
product margins have been better than flat products recently.
Earnings broadly in line: JSTL reported EBITDA (Rs14.3bn, -14% q/q) and
PAT (Rs4.9bn, -32% q/q) broadly in line with JPM estimates. Standalone
EBITDA/MT for the quarter stood at $181/MT (-15% q/q) vs. JPMe of
$174/MT. Volumes were down 1% q/q, but ASPs were up 1% q/q. These
results do not include Ispat (NR). Exports increased sharply as JSTL continues
to look at export markets to offset the domestic oversupply situation.
Positives for the quarter: 1QFY12 results included Chile iron ore sales of
0.2MT generating EBITDA of $11.5mn, while US pipe and plate mill reported
EBITDA of $3.5mn. Subsidiary EBITDA at Rs0.4bn was at the highest level in
five quarters. We expect this to increase as Chile iron ore mine ramps up and
US pipe mill utilization rates have bottomed out (1QFY12 utilization at 22% vs.
10% in FY11).
Near-term lower spot steel prices, higher raw material costs to weigh on
margins: The recent spot steel price correction and weakness in domestic
FLAT steel prices, combined with higher raw material prices, could weigh on
margins (JPMe EBITDA/MT $176/175 FY12/13E). JSTL maintains its sales
volume guidance of 9MT for the year, implying a quarterly run rate of 2.4MT
vs. 1.7MT in Q1FY12. We believe it has to increase reliance on exports, given
the weak domestic market, particularly in flats. Our sales volume estimates are
8.2MT for FY12E.
Stock view- A high ‘beta’ to domestic steel demand/spread increases: JSTL
has significant capacity addition, given it has recently commissioned 3.2MT BF.
In our view, JSTL is a play on domestic demand recovery and increase in
conversion margins for non integrated steel mills. Given our view of the
domestic FLAT markets oversupply situation during FY12-13E, we wait
for a better entry opportunity (either in terms of +10% stock correction
from current levels, which would take it to book value, or visibility of
domestic demand recovery) before stepping in. Key risks other than steel
prices and demand are: a) sharp deterioration in ISPAT (NR) financials, and b)
iron ore availability issues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel Neutral
JSTL.BO, JSTL IN
Export increase drives in-line earnings; positive news
flow on overseas subs
Exports increased for the second consecutive quarter to Rs13.4bn (+98% y/y,
+15% q/q) and accounted for 18% of sales, as JSW looks to overseas markets
to offset the domestic demand weakness. JSTL confirmed our thesis that long
product margins have been better than flat products recently.
Earnings broadly in line: JSTL reported EBITDA (Rs14.3bn, -14% q/q) and
PAT (Rs4.9bn, -32% q/q) broadly in line with JPM estimates. Standalone
EBITDA/MT for the quarter stood at $181/MT (-15% q/q) vs. JPMe of
$174/MT. Volumes were down 1% q/q, but ASPs were up 1% q/q. These
results do not include Ispat (NR). Exports increased sharply as JSTL continues
to look at export markets to offset the domestic oversupply situation.
Positives for the quarter: 1QFY12 results included Chile iron ore sales of
0.2MT generating EBITDA of $11.5mn, while US pipe and plate mill reported
EBITDA of $3.5mn. Subsidiary EBITDA at Rs0.4bn was at the highest level in
five quarters. We expect this to increase as Chile iron ore mine ramps up and
US pipe mill utilization rates have bottomed out (1QFY12 utilization at 22% vs.
10% in FY11).
Near-term lower spot steel prices, higher raw material costs to weigh on
margins: The recent spot steel price correction and weakness in domestic
FLAT steel prices, combined with higher raw material prices, could weigh on
margins (JPMe EBITDA/MT $176/175 FY12/13E). JSTL maintains its sales
volume guidance of 9MT for the year, implying a quarterly run rate of 2.4MT
vs. 1.7MT in Q1FY12. We believe it has to increase reliance on exports, given
the weak domestic market, particularly in flats. Our sales volume estimates are
8.2MT for FY12E.
Stock view- A high ‘beta’ to domestic steel demand/spread increases: JSTL
has significant capacity addition, given it has recently commissioned 3.2MT BF.
In our view, JSTL is a play on domestic demand recovery and increase in
conversion margins for non integrated steel mills. Given our view of the
domestic FLAT markets oversupply situation during FY12-13E, we wait
for a better entry opportunity (either in terms of +10% stock correction
from current levels, which would take it to book value, or visibility of
domestic demand recovery) before stepping in. Key risks other than steel
prices and demand are: a) sharp deterioration in ISPAT (NR) financials, and b)
iron ore availability issues.
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