29 October 2013
2QFY14 Results Update | Sector:
Metals
JSW Steel
BSE SENSEX
20,929
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,221
JSTL IN
241.7
894/452
11/15/5
CMP: INR861
TP: INR510
Sell
Strong performance helped by exports
JSW Steel reported strong growth in sales volume and EBITDA driven by exports.
Margins too improved due to various improvements in operations.
Adjusted standalone PAT increased 84% QoQ to INR7.9b, i.e. 41% above est.
largely due to stronger than expected sales volumes on account of liquidation of
inventories.
Consolidated adj. PAT increased 111% QoQ to INR2.6b. Performance of
subsidiaries was still a drag. Reported consolidated PAT (post MI &asso.) of
INR1.15b included forex loss of INR8.5b.
Forex loss was aggravated due to mid quarter change in hedging strategies. JSW
steel is now fully hedging short term forex borrowing and corresponding forward
export revenues. This will better reflect actual business margins, in our view.
Net debt on balance sheet is ~INR400b (including acceptances), which is higher
than our estimate for FY14 end of INR378b. Net debt on balance sheet may
further increase despite cut in capex. Net working capital is likely to rise due to
stretching of credit period by domestic customer.
Weakening steel prices in international market and appreciation of USD/INR rate
is shrinking the export opportunity. Although Indian steel demand is expected to
improve in 2HFY14 due to seasonal factors, yet the import pressure/reducing
exports trend is likely to put pressure on domestic steel prices.
JSW steel continues to improve its operation through right strategic investments,
yet the ballooning debt keeps eroding equity value. Stock trades at FY15
EV/EBTIDA of 6.6x. We value the stock at INR510/share based on SOTP.
Sell.
M.Cap. (INR b) / (USD b) 208.1/3.4
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
Adj.EPS
(INR)
Growth
(%)
BV/Share
(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2013
382.1
65.0
8.9
49.7
-25.3
764.8
7.7
8.4
17.3
1.1
2014E 2015E
483.0
85.7
2.4
31.6
-36.5
680.5
11.5
10.1
27.3
1.3
489.8
88.5
7.1
43.8
38.8
696.0
9.2
9.5
19.7
1.2
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Pavas Pethia
(Pavas.Pethia@MotilalOswal.com); +91 22 3982 5413
Investors are advised to refer through disclosures made at the end of the Research Report.