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JSW Steel Ltd ------------------------------------------------------------- Maintain UNDERPERFORM
Great execution again; But overshadowed by concerns on sector and gearing
● JSW again showed good execution in Indian sales volumes and
cost containment. Launch of special products to tap rural/ semiurban
demand helps: India sales in line. EBITDA beat by 7%
mainly due to use of lower cost inventory in India.
● Consolidated net debt is now US$3.4 bn, up US$200 mn QoQ.
Expected to rise further end-FY12 due to capex and higher
working capital. Interest cost is now 6.81%, up 30 bp. 1Q interest
costs were higher than expected and up 21% QoQ.
● FY12 volume guidance maintained: Crude steel production of 8.75
mt implies finished steel 8.3 mt, vs. CS 8.1 mt. Guided sales
volume of 9 mt includes 735 kt from Ispat re-rolling. JSW expects
EBITDA/t to be flat YoY, whereas we expect a US$5/t fall.
● Due to mining ban in Bellary, JSW is sourcing ore from Chitradurg
mines, though it maintains it has sufficient ore from 10 mnt
capacity. Freight cost is Rs 200/t higher from Chitradurg.
● We remain negative on Indian steel names. For JSW, valued on
EV/EBITDA, rising net debt for expansions erodes market cap.
Maintain TP and UNDERPERFORM rating. Remain negative on
Indian steel due to structural reasons; with rise in net debt
(US$4.2 bn) will erode market cap for names valued on
EV/EBITDA. We maintain our TP and UNDERPERFORM rating.
EBITDA beat; Good execution again but interest cost up
JSW again showed good execution in Indian sales volumes and cost
containment. India sales were in line (slight miss in volumes, better
prices) but overseas divisions helped beat sales estimates by 3%.
EBITDA beat by 7% mainly due to use of lower cost inventory in India.
Interest costs were higher than expected (+21% QoQ). Ispat results
have not been consolidated yet.
Key takeaways from Analyst Meet
● Capex: FY12-14 guidance of Rs150 bn (excl. Bengal) maintained.
● Net debt: US$3.4 bn (+US$200 mn QoQ) and may rise further
due to capex, working capital. Interest cost is now 6.8%, up 30 bp.
● FY12 volume guidance maintained: Crude steel production of
8.75 mt implies finished steel 8.3 mt, vs. CS 8.1 mt. Sales volume
of 9 mt includes 735 kt from Ispat re-rolling. JSW expects to
maintain EBITDA/t at FY11 levels; we expect a US$5/t fall YoY.
● Iron ore: Due to mining ban in Bellary, JSW is sourcing ore from
Chitradurg mines, and maintains it has sufficient ore for 10 mnt
capacity. Freight cost is Rs200/t higher from Chitradurg, and
landed iron ore costs are unchanged in July from 1Q.
● Sales initiatives: To tap rural/ semi-urban markets, JSW has
launched special sales initiatives and product lines. JSW Shoppe
sales up 87% YoY, and now ~20% of total sales.
● Expansion: Work to start on the 2 mnt capacity expansion at
Vijaynagar. The expansion would be mix of DRI + BF debottlenecking.
The DRI is under a promoter-owned company,
which would be transferred to JSW after eight years.
● Overseas mines: 190 kt shipped from Chile at US$60/t EBITDA,
target production is 1 mnt in FY12. US coking coal shipments
expected to start from 3Q12, volume guidance is now 350 kt in
FY12 vs. 550 kt earlier. At current prices on semi soft coking coal,
JSW plans to save US$80/t of coal due to the captive coal mine.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel Ltd ------------------------------------------------------------- Maintain UNDERPERFORM
Great execution again; But overshadowed by concerns on sector and gearing
● JSW again showed good execution in Indian sales volumes and
cost containment. Launch of special products to tap rural/ semiurban
demand helps: India sales in line. EBITDA beat by 7%
mainly due to use of lower cost inventory in India.
● Consolidated net debt is now US$3.4 bn, up US$200 mn QoQ.
Expected to rise further end-FY12 due to capex and higher
working capital. Interest cost is now 6.81%, up 30 bp. 1Q interest
costs were higher than expected and up 21% QoQ.
● FY12 volume guidance maintained: Crude steel production of 8.75
mt implies finished steel 8.3 mt, vs. CS 8.1 mt. Guided sales
volume of 9 mt includes 735 kt from Ispat re-rolling. JSW expects
EBITDA/t to be flat YoY, whereas we expect a US$5/t fall.
● Due to mining ban in Bellary, JSW is sourcing ore from Chitradurg
mines, though it maintains it has sufficient ore from 10 mnt
capacity. Freight cost is Rs 200/t higher from Chitradurg.
● We remain negative on Indian steel names. For JSW, valued on
EV/EBITDA, rising net debt for expansions erodes market cap.
Maintain TP and UNDERPERFORM rating. Remain negative on
Indian steel due to structural reasons; with rise in net debt
(US$4.2 bn) will erode market cap for names valued on
EV/EBITDA. We maintain our TP and UNDERPERFORM rating.
EBITDA beat; Good execution again but interest cost up
JSW again showed good execution in Indian sales volumes and cost
containment. India sales were in line (slight miss in volumes, better
prices) but overseas divisions helped beat sales estimates by 3%.
EBITDA beat by 7% mainly due to use of lower cost inventory in India.
Interest costs were higher than expected (+21% QoQ). Ispat results
have not been consolidated yet.
Key takeaways from Analyst Meet
● Capex: FY12-14 guidance of Rs150 bn (excl. Bengal) maintained.
● Net debt: US$3.4 bn (+US$200 mn QoQ) and may rise further
due to capex, working capital. Interest cost is now 6.8%, up 30 bp.
● FY12 volume guidance maintained: Crude steel production of
8.75 mt implies finished steel 8.3 mt, vs. CS 8.1 mt. Sales volume
of 9 mt includes 735 kt from Ispat re-rolling. JSW expects to
maintain EBITDA/t at FY11 levels; we expect a US$5/t fall YoY.
● Iron ore: Due to mining ban in Bellary, JSW is sourcing ore from
Chitradurg mines, and maintains it has sufficient ore for 10 mnt
capacity. Freight cost is Rs200/t higher from Chitradurg, and
landed iron ore costs are unchanged in July from 1Q.
● Sales initiatives: To tap rural/ semi-urban markets, JSW has
launched special sales initiatives and product lines. JSW Shoppe
sales up 87% YoY, and now ~20% of total sales.
● Expansion: Work to start on the 2 mnt capacity expansion at
Vijaynagar. The expansion would be mix of DRI + BF debottlenecking.
The DRI is under a promoter-owned company,
which would be transferred to JSW after eight years.
● Overseas mines: 190 kt shipped from Chile at US$60/t EBITDA,
target production is 1 mnt in FY12. US coking coal shipments
expected to start from 3Q12, volume guidance is now 350 kt in
FY12 vs. 550 kt earlier. At current prices on semi soft coking coal,
JSW plans to save US$80/t of coal due to the captive coal mine.
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