9 July 2013
Annual Report Update |
Sector:
Metals
JSW Steel
BSE SENSEX
S&P CNX
19,439
5,859
CMP: INR608
INR19b invested in subsidiaries
TP: INR462
Sell
Debt limit to increase by INR150b to INR400b
JSW Steel released the annual report for 2013 (excluding JSW Ispat) and following are the
key highlights:
Specific consumption of iron ore increased from 1.97x to 2.07x. Cost of iron ore per
ton of crude steel production increased by INR778/t to INR7,042/t.
Cost of coking coal declined by INR2,539 to INR12,760 per ton of crude steel production.
Modification in fuel mix too helped the reduction in carbon costs although the use of
inferior grade material impacted both furnace productivity and fuel rates adversely.
Trade receivable increased 37% to INR18.6b. Debtor days increased from 15 to 19
days.
Forex development tax (FDT) of INR8.66b @12.5% imposed by CEC on iron ore
purchased through e-auction is still being treated as contingent liability as it has been
contested by both steel producers and iron ore miners in Karnataka.
Short term loans and advances increased 38% or INR16.8b to INR61.2b mainly due to
infusion of funds into subsidiaries. Total loans and advances to all overseas subsidiaries
increased by INR12.2b to INR37.7b. In addition, JSW Steel has given guarantee of
INR12.2b on account of overseas subsidiaries.
Net debt increased by INR48b to INR292b (LT debt 173.9 + ST debt 16.5 + other CL
64.5 - ST advances 25.4 + Pref shares 2.8 + Acceptance 77.7 - cash 16.4 - Current
Investment 1.4). Since there are forex loans of ~USD3b on consolidated balance
sheet, the forex loss itself would account for ~INR20b of this increase.
Board is seeking to enhance borrowing limits from INR250b to INR400b.
Steel demand remains weak both in India and other parts of world, while iron ore and
coking coal still trade significantly above cost of production. The conversion spreads of
steel mills in China are still on rise due to sharper fall in price of raw materials with
regard to steel prices. Since large overcapacity exists in China, we expect Chinese mills
to ramp up production leading to fall in steel prices. Thus, we believe the pressure on
steel prices will continue although there may be some techincal recovery at times.
Despite weakening of INR, Indian steel producers are unable to raise steel prices in
India due to poor domestic demand. On the other hand, JSW Steel will bear the forex
loss on USD3b of forex loans.
Post merger with Ispat net debt of consolidated JSW Steel will increase to INR367b,
while we estimate EBITDA of INR82.4b for FY15. The stock is trading at rich EV/EBITDA
of 6.2x in FY15E. Maintain Sell with a SOTP-based target price of INR462.
Bloomberg
JSTL IN
Equity Shares (m)
241.7
M.Cap. (INR b)/(USD b) 147.0/2.4
52-Week Range (INR)
894/570
1,6,12 Rel. Perf. (%)
-16/-27/-25
Financials & Valuation (INR b)
Y/E March
2013 2014E 2015E
Sales
382.1 447.8 455.6
EBITDA
65.0
79.5
82.4
Adj. PAT
11.1
12.3
13.5
Adj. EPS (INR) 49.7
50.9
56.0
EPS Gr(%)
-25.3
2.3
10.1
BV/Sh. (INR) 764.8 710.1 753.2
RoE (%)
6.6
6.9
7.7
RoCE (%)
8.4
9.4
9.0
Payout (%)
25.9
21.8
19.9
Valuations
P/E (x)
12.2
12.0
10.9
P/BV
0.8
0.9
0.8
EV/EBITDA (x)
6.6
6.5
6.2
Div. Yield (%)
1.6
1.6
1.6
JSW Ispat included in FY14 & FY15
Shareholding pattern %
As on
Mar-13 Dec-12 Mar-12
Promoter
38.6
38.6
38.5
Dom.Inst
4.5
5.3
4.7
Foreign
40.8
40.4
41.7
Others
16.1
15.7
15.2
Stock performance (1 year)
Standalone
Iron ore consumption rate up 5% due to falling grade; Iron ore cost per
ton of steel up 12%
Iron ore consumption increased 20% to 17.6m tons although crude steel
production increased only 15% to 8.52m tons (7.43m tons). Specific
consumption of iron ore increased from 1.97x to 2.07x.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +9122 39825412
Pavas Pethia
(Pavas.Pethia@MotilalOswal.com); +9122 39825413
Investors are advised to refer through disclosures made at the end of the Research Report.
1

JSW Steel
Average iron ore cost increased from INR2,936/t (INR3,280/t incl. FDT) to
INR3,212/t (INR3,409/t incl. FDT). Hence, the cost of iron ore per ton of crude steel
increased by INR778/t (12% YoY) to INR7,042/t.
Steel realization declined by INR1,136 to INR39,973/t of saleable steel.
Cost of coking coal declined by INR2,539/t to INR12,760/t of crude steel production.
Modification in fuel mix too helped reduction in carbon costs. Although the use
of inferior grade material impacted both furnace productivity and fuel rates
adversely.
Increase in iron ore cost, fall in realization and some increase in operating costs
was offset by reduction in coking coal cost. EBITDA/t remained flat at INR7,100/t.
Iron ore cost (ex FDT) increased 9.4% YoY in FY13
Specific consumption of iron ore increased from 1.97x to 2.07x
Source: Company, MOSL
Working Capital increased by INR9.5b on higher receivables, loans and
advances; Inventory decline
Inventories declined from INR52b to INR48b. Inventory days declined from 59
days to 49 days.
Trade receivable increased 37% YoY to INR18.6b. Debtor days increase from 15days
to 19days.
Increased working capital requirements consumed INR9.5b of cash mainly on
account of higher debtors, loans and advances.
Debtors day increased from 15 to 19
Inventory days declined from 59 to 49
Source: Company, MOSL
9 July 2013
2

JSW Steel
Iron ore costs understated because FDT taken under contingent liability;
Net debt up INR17b
Forex development tax (FDT) of INR8.66b@12.5% imposed by CEC on iron ore
purchased through E-auction is still being treated as contingent liability because
it has been contested by both steel producers and iron ore mines in Karnataka. Of
this, INR6.5b is already paid and appears as loan and advances to supplier on the
asset side.
Standalone net debt increased by INR17b to INR210b.
Standalone CapEx during the year was INR46b mainly on account of HSM II
expansion to 5mtpa and increased iron ore beneficiation capacity to 20mtpa.
Bill discounted under contingent liability was INR30.1b vs INR31.1b last year.
INR32.2b (vs INR37.3b last year) contract to be executed on Capital account.
Subsidiaries
Exposure to loss making US operations increase; INR10.7b capex mainly on
account of Amba project
Short term loan and advances increased 38% or INR16.8b to INR61.2b mainly due
to infusion of funds into subsidiaries.
Total loans and advances to all overseas subsidiaries increased by INR12.2b to
INR37.5b. INR15.6b was extended to JSW Steel Holding (USA) which is holding
company for its US plate and pipe mill operations. In addition, JSW Steel has
given guarantee of INR12.2b on account of overseas subsidiaries.
US Plate and Pipe pill reported higher loss before tax of INR3b in FY13 against loss
of INR147m in FY12.
No provision against diminution in value of INR31.6b investment in US plate and
pipe mill was made although auditors have pointed it out.
Invested INR3.2b in subsidiaries (INR1.07b in Amba River Coke + INR938m in JSW
Bengal). Net loans and advances to subsidiaries increased by INR15.6b thereby
total investments to subsidiaries increaded by INR19b.
INR10.7b was spent on capex in subsidiaries altogether with Amba Coke project
accounting for major part (~ INR8b) of the expenditure.
Consolidated
Net debt increased by INR48b to INR292b; borrowing limits to enhance
from INR250b to INR400b
Net debt increased by INR48b to INR292b (LT debt 173.9 + ST debt 16.5 + other CL
64.5 - ST advances 25.4 + Pref shares 2.8 + acceptance 77.7 - cash 16.4 - Curr Invt
1.4). Since there are forex loans of ~USD3b on consolidated balance sheet, the
forex loss itself would account for ~INR20b of this increase.
CapEx during the year was INR56b (INR46b standalone + INR11b subsidiaries).
Board is seeking to enhance borrowing limits from INR250b to INR400b.
9 July 2013
3

JSW Steel
Financials and Valuation (Post JSW Ispat merger from FY14 onwards)
Income Statement (Consolidated)
Y/E March
Net sales
Change (%)
Total Expenses
EBITDA
% of Net Sales
Depn. & Amortization
EBIT
Net Interest
Other income
PBT before EO
EO income
PBT after EO
Tax
Rate (%)
Reported PAT
Minority interests
Share of Associates
Preference dividend
Adj. PAT (after MI & Asso)
Change (%)
2011
241,059
27.2
192,380
48,679
20.2
15,597
33,082
10,603
1,900
24,379
24,379
7,785
31.9
16,594
-239
707
279
16,783
40.4
2012
343,681
42.6
282,662
61,019
17.8
19,332
41,687
14,273
769
28,183
-15,353
12,830
5,002
39.0
7,828
189
-2,262
279
14,844
-11.6
2013
382,097
11.2
317,057
65,039
17.0
22,375
42,664
19,675
697
23,687
-4,302
19,385
8,453
43.6
10,933
-343
-1,645
279
11,091
-25.3
(INR Million)
2014E
447,835
17.2
368,371
79,463
17.7
31,321
48,142
29,276
3,594
22,460
22,460
9,494
42.3
12,966
-389
279
12,298
10.9
2015E
455,608
1.7
373,182
82,426
18.1
32,917
49,509
29,334
4,044
24,219
24,219
10,006
41.3
14,213
-391
279
13,543
10.1
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Interest
Total Loans
Deferred Tax Liability
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liability & Prov.
Account Payables
Provisions & Others
Net Current Assets
Appl. of Funds
E: MOSL Estimates
9 July 2013
2011
2,231
160,272
162,503
2,219
236,073
20,494
421,288
337,771
68,732
269,039
65,078
26,437
86,298
44,097
9,334
23,063
9,805
25,563
21,740
3,823
60,735
421,288
2012
2,231
162,474
164,705
2,177
293,907
27,250
488,039
426,895
88,775
338,121
35,703
18,856
124,582
57,893
15,394
32,510
18,786
29,223
26,565
2,659
95,359
488,039
2013
2,231
168,416
170,647
1,972
310,091
32,720
515,430
458,676
111,508
347,168
65,972
16,064
120,572
54,952
21,063
17,969
26,588
34,345
30,858
3,487
86,226
515,430
2014E
2,417
169,229
171,646
1,583
401,359
16,503
591,091
631,311
217,224
414,087
85,972
1,626
153,717
73,617
18,404
30,089
31,607
64,309
60,776
3,533
89,407
591,091
(INR Million)
2015E
2,417
179,664
182,082
1,192
401,359
24,508
609,141
691,311
250,142
441,169
65,972
1,626
160,078
74,895
18,724
34,853
31,607
59,704
56,171
3,533
100,374
609,141
4

JSW Steel
Financials and Valuation (Post JSW Ispat merger from FY14 onwards)
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE (pre-tax)
RoIC (pre-tax)
Working Capital Ratios
Debtor (Days)
Inventory (Days)
Creditors(Days)
Working Capital (Days)
Leverage Ratio (x)
Interest Cover Ratio
Debt/Equity
12.5
9.6
12.0
14
67
33
48
3.1
1.3
2011
75.2
144.3
728.3
12.3
14.3
2012
66.5
121.7
738.2
7.5
23.6
9.1
5.0
0.8
1.2
6.5
1.2
9.1
8.8
11.8
16
61
28
50
2.9
1.6
2013
49.7
149.3
764.8
10.0
20.5
12.2
4.1
0.8
1.1
6.6
1.6
6.6
8.4
10.5
20
52
29
43
2.2
1.7
2014E
50.9
183.2
710.1
10.0
25.3
12.0
3.3
0.9
1.2
6.5
1.6
6.9
9.4
10.8
15
60
45
30
1.6
2.2
2015E
56.0
195.0
753.2
10.0
22.9
10.9
3.1
0.8
1.1
6.2
1.6
7.7
9.0
10.1
15
60
45
30
1.7
2.0
Cash Flow Statement
Y/E March
EBITDA
Non cash exp. (income)
(Inc)/Dec in Wkg. Cap.
Tax Paid
CF from Op. Activity
(Inc)/Dec in FA + CWIP
(Pur)/Sale of Investments
Acquisition in subsidiaries
Int. & Dividend Income
Other investing activities
CF from Inv. Activity
Equity raised/(repaid)
Debt raised/(repaid)
Dividend (incl. tax)
Interest paid
CF from Fin. Activity
(Inc)/Dec in Cash
Add: opening Balance
Margin Money & debenture balance
Closing Balance
E: MOSL Estimates
9 July 2013
2011
48,679
-2,944
-13,137
-4,264
28,334
-53,144
-266
-23,598
526
2701.4
-73,780
59,356
4,008
-2,397
-10,007
50,961
5,514
3,030
14,518
23,063
2012
61,019
-11,202
-10,622
-4,071
35,124
-40,795
808
-1,790
636
-267
-41,407
2013
65,039
-7,379
5,888
-5,105
58,442
-56,301
774
539
533
-590
-55,044
2014E
79,463
-6,387
-1,899
71,177
-50,000
(INR Million)
2015E
82,426
-6,203
-2,001
74,222
-40,000
3,594
-46,406
4,044
-35,956
21,909
-3,501
-11,430
6,978
695
23,063
8,753
32,510
9,546
-2,269
-15,186
-7,909
-4,511
32,510
-10,030
17,969
19,731
-3,107
-29,276
-12,652
12,120
17,969
30,089
-1,061
-3,107
-29,334
-33,502
4,764
30,089
34,853
5

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JSW Steel
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