25 July 2020
1QFY21 Results Update | Sector: Metals
JSW Steel
Estimate change
TP change
Rating change
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CMP: INR205
TP: INR242 (+18%)
Weak domestic demand impacts profitability
Buy
Expected price hikes to improve margins
JSW Steel’s (JSTL) 1QFY21 results reflect the adverse impact of COVID-19 on
steel demand and prices as consol. EBITDA declined 55% QoQ to INR13.4b.
We expect an increase in domestic steel prices, supported by improving
domestic demand and international prices which should improve margins in
2QFY21. We maintain our FY21E/FY22E estimates. Maintain
Buy.
In-line; Lower volumes and realizations lead to EBITDA decline
JSTL’s consol. EBITDA was down 64% YoY (+55% QoQ) to INR13.4b (v/s est.
INR13.0b) on lower volumes and realizations. It reported loss of INR5.6b
(v/s profit of INR10.4b in 4QFY20 and est. loss of INR5.3b).
Standalone (S/A) business suffered from weak domestic sales (down 58%
YoY), forcing higher exports (up 133% YoY). Overall volumes still declined
25% YoY to 2.8mt (v/s est. 2.6mt).
Realization declined 11% QoQ to INR36,892/t (v/s est. INR36,789/t) due to
weaker mix on account of higher exports (57% volumes v/s 13% in 4QFY20)
and adverse product mix (weaker auto demand, etc.).
EBITDA/t declined 41% QoQ to INR5,122/t (v/s est. INR5,545/t), due to
lower realization and negative operating leverage, which was offset by
lower iron ore cost and other operating costs.
Thus, standalone EBITDA declined 56% QoQ to INR14.3b (v/s est. INR14.4b).
Subsidiaries’ EBITDA loss shrunk to INR880m (v/s loss of INR2,450m in
4QFY20) on improved performance of Indian subsidiaries. However, loss
from JSTL’s three key overseas subsidiaries remained elevated at INR2.4b
(v/s loss of INR3.05b in 4QFY20).
Reported net debt increased by INR10b QoQ to INR545b. Net debt to
EBITDA stood at 5.74x.
Highlights from management commentary
JSTL has informed that there were moderate price hikes in Jul’20. The
company expects another round of price hikes in Aug’20. As a result, it
expects improved realizations during 2QFY21. It also expects to benefit
from lower coking coal prices to an extent of USD20-25/t of coking coal.
The company has operationalized all its four mines in Odisha during Jul’20
post finalization of contracts with MDOs and transporters. It has also
started dispatches from mines to Dolvi and Vijayanagar plants. It expects to
produce 1.2mt during Jul’20 and ~17mt in FY21.
JSTL has reiterated its FY21 production and sales guidance of 16.0mt and
15.0mt, respectively.
Reported net debt increased by INR10b during 1QFY21 to INR545b
(INR535b in end-FY20).
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
JSTL IN
2,417
495.3 / 6.8
297 / 133
-4/-16/-20
2158
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
Sales
726.1 668.2 884.1
EBITDA
111.6 111.6 177.9
Adj. PAT
21.7
20.2
53.8
EBITDA Margin (%)
15.4
16.7
20.1
Adj. EPS (INR)*
9.0
8.4
22.4
EPS Gr. (%)
-71.6
-7.0
167.0
BV/Sh. (INR)
152.5 159.1 179.7
Ratios
Net D:E
1.7
1.7
1.6
RoE (%)
6.1
5.4
13.2
RoCE (%)
4.5
4.2
7.4
Payout (%)
55.1
23.8
8.9
Valuations
P/E (x)
22.7
24.4
9.1
P/BV (x)
1.3
1.3
1.1
EV/EBITDA(x)
10.1
10.4
6.6
Div. Yield (%)
2.0
1.0
1.0
FCF Yield (%)
3.2
8.1
9.0
*Cons.
Shareholding pattern (%)
As On
Jun-20 Mar-20
Promoter
43.1
42.7
DII
5.4
4.9
FII
16.0
17.7
Others
35.5
34.7
FII Includes depository receipts
Jun-19
42.3
3.8
19.6
34.4
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com)
Basant Joshi - Research analyst
(Basant.Joshi@motilaloswal.com)
14
Oswal
2020
1
Motilal
January
research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.