JSW Steel - Weak Sector Fundamentals; Result Update ::Edelweiss

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JSW Steel’s (JSW) Q3FY15 consolidated EBITDA of INR22.9bn dipped ~5% YoY and 18% QoQ tracking weak steel prices and high raw material cost (due to domestic supply constraints of iron ore). Standalone EBITDA/t at ~INR7k was lower than ~INR8.5k in H1FY15. While realisation fell ~3% QoQ, it is set to fall further given another 4% drop seen in domestic prices (this far in Q4FY15) on weak global prices and rising imports in India. Global fundamentals of steel sector remain weak factoring: 1) China slowdown leading to rise in exports and a downward pressure on steel prices; 2) low cost of iron ore due to supply glut; and 3) rising exports from CIS countries due to currency depreciation. Taking cue from 9mFY15, we lower our FY15/FY16 EBITDA/t estimate by 6%/20% to INR8.1k/INR8.3k respectively. We introduce our FY17E EBITDA/t of INR8.5k with no visibility of sustainable recovery in steel prices globally.

PAT down 29% YoY and 56% QoQ

Sales volume (at ~3mt) and realisation, both fell ~2% YoY. JSW could not benefit from the ~48% YoY drop in global iron prices as domestic supply constraints forced it to import the raw material. PAT dipped 29% YoY following 19% rise in interest cost due to ~INR35bn QoQ increase in net debt to meet higher working capital requirement.

Volume guidance maintained; capex to moderate

JSW has retained its FY15 sales volume guidance of 12.5mt and factoring the rise in net debt, has guided moderation in its FY15 initial capex of INR75bn. Accordingly, we revise down our capex estimate to INR55bn for FY15.

LINK
https://www.edelweiss.in/research/JSW-Steel--Weak-Sector-Fundamentals;-Result-Update-Q3FY15/28196.html