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Good in a tough environment. JSW Steel’s consolidated EBITDA declined 18% qoq to `23 bn (-5% yoy). JSTL delivered well in a tough environment given (1) narrowing conversion spreads due to decline in steel prices but firm domestic iron ore prices, and (2) volume pressure due to large imports. While weak steel prices will impact near-term margins, we expect conversion spreads to improve on (1) decline in domestic iron ore prices as supplies ease, and (2) revival in steel demand. We take cognizance of collapse in steel prices due to multiple global factors and cut steel price assumption by 5-12% and EBITDA by 3-8% for FY2015-17E. Maintain BUY rating with revised TP of `1,305, down from `1,490 earlier.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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3QFY15 results: slide in steel prices, narrowing conversion spreads impact EBITDA JSW Steel’s consolidated EBITDA declined 18% qoq to `23 bn (-5% yoy), but was 11% higher than our estimate. The company’s standalone EBITDA/ton declined 18% qoq to `6,990/ton (- 6% yoy). The EBITDA decline was largely a function of decline in conversion spreads from decline in steel prices but firm domestic iron ore prices; the company’s blended steel realizations declined 4% qoq (`1,400/ton) due to weak domestic/export prices while raw material costs declined by 1.5% (`330/ton). However, accounting for the hedging cost of `2 bn associated with iron ore imports (but accounted in other expenses), JSTL’s raw material costs increased by 2% qoq. Steel deliveries declined 1% qoq to 3.03 mn tons (-2% yoy) leading to build-up of steel inventories (+135 kt). Domestic steelmakers continue to compete with large imports in a muted demand environment. JSTL reported net income of `3.3 bn (-56% qoq, -30% yoy). Conversion spreads likely to improve owing to softening in domestic iron ore prices While international iron ore prices have declined by 30% over the past six months, domestic prices have increased by 1-12% due to supply shortage, impacting steelmakers. Due to shortage, iron ore prices have moved to import parity from export parity in the past two years. JSTL itself is better off buying 30% of its current requirement from imports rather than from the states of Odisha and Chhattisgarh. We believe domestic prices will likely soften as the supply eases after reopening of new mines. Odisha miners have already cut prices by 7-15% as mines have reopened. Iron ore availability in Karnataka will likely improve to 24 mtpa in FY2016 from 18 mtpa now. Raw material situation can ease further following mine auctions; good volume prospects. BUY Karnataka is set to auction 15 iron ore mines in FY2016 subject to the Supreme Court’s approval. Auctions can benefit JSTL given these are only meant for captive users. We maintain our positive view given reasonable volume growth prospects, excellent execution and reasonable balance sheet. We cut steel price assumption by 5-12% to factor recent collapse in prices. This results in 3-8% cut in FY2015-17E EBITDA. Maintain BUY with TP of `1,305 (`1,490 earlier). The fair value change reflects cut in EBITDA and rollover to September 2016E.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
Good in a tough environment. JSW Steel’s consolidated EBITDA declined 18% qoq to `23 bn (-5% yoy). JSTL delivered well in a tough environment given (1) narrowing conversion spreads due to decline in steel prices but firm domestic iron ore prices, and (2) volume pressure due to large imports. While weak steel prices will impact near-term margins, we expect conversion spreads to improve on (1) decline in domestic iron ore prices as supplies ease, and (2) revival in steel demand. We take cognizance of collapse in steel prices due to multiple global factors and cut steel price assumption by 5-12% and EBITDA by 3-8% for FY2015-17E. Maintain BUY rating with revised TP of `1,305, down from `1,490 earlier.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
3QFY15 results: slide in steel prices, narrowing conversion spreads impact EBITDA JSW Steel’s consolidated EBITDA declined 18% qoq to `23 bn (-5% yoy), but was 11% higher than our estimate. The company’s standalone EBITDA/ton declined 18% qoq to `6,990/ton (- 6% yoy). The EBITDA decline was largely a function of decline in conversion spreads from decline in steel prices but firm domestic iron ore prices; the company’s blended steel realizations declined 4% qoq (`1,400/ton) due to weak domestic/export prices while raw material costs declined by 1.5% (`330/ton). However, accounting for the hedging cost of `2 bn associated with iron ore imports (but accounted in other expenses), JSTL’s raw material costs increased by 2% qoq. Steel deliveries declined 1% qoq to 3.03 mn tons (-2% yoy) leading to build-up of steel inventories (+135 kt). Domestic steelmakers continue to compete with large imports in a muted demand environment. JSTL reported net income of `3.3 bn (-56% qoq, -30% yoy). Conversion spreads likely to improve owing to softening in domestic iron ore prices While international iron ore prices have declined by 30% over the past six months, domestic prices have increased by 1-12% due to supply shortage, impacting steelmakers. Due to shortage, iron ore prices have moved to import parity from export parity in the past two years. JSTL itself is better off buying 30% of its current requirement from imports rather than from the states of Odisha and Chhattisgarh. We believe domestic prices will likely soften as the supply eases after reopening of new mines. Odisha miners have already cut prices by 7-15% as mines have reopened. Iron ore availability in Karnataka will likely improve to 24 mtpa in FY2016 from 18 mtpa now. Raw material situation can ease further following mine auctions; good volume prospects. BUY Karnataka is set to auction 15 iron ore mines in FY2016 subject to the Supreme Court’s approval. Auctions can benefit JSTL given these are only meant for captive users. We maintain our positive view given reasonable volume growth prospects, excellent execution and reasonable balance sheet. We cut steel price assumption by 5-12% to factor recent collapse in prices. This results in 3-8% cut in FY2015-17E EBITDA. Maintain BUY with TP of `1,305 (`1,490 earlier). The fair value change reflects cut in EBITDA and rollover to September 2016E.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
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