JSW Steel Ltd (Q4 FY13) – Market Performer
CMP Rs688, Target Rs702, Upside 2%
² JSW managed to report strong quarterly numbers during Q4 FY13 on the back of strong volume growth, decline in raw material costs and stable realizations. The company managed to report a jump of 12% qoq to Rs92.9bn, quite higher than our estimate of Rs85bn. The outperformance was largely due to a jump in sales volume to 2.43mn tons from 2.17mn tons in Q3 FY13 and against our estimate of 2.2mn tons. We believe the outperformance is inventory liquidation as production volume growth was flat on a qoq basis. Saleable steel production remained flat at 2.1mn tons in Q4 FY13 despite the tight iron ore market situation in Karnataka. Exports during the quarter jumped 67% qoq and 46% yoy to 0.64mn tons, its highest ever quarterly exports. Blended realizations for the quarter stood Rs38,234, flat on a qoq basis but lower by 7.5% on a yoy basis. Realisations were marginally lower than our estimate as the domestic market witnessed a supply glut during the quarter. JSW managed to report flat realizations on account of improved product mix and an increase in exports.
² Along with the increase in volumes, the company managed to out beat our margin assumptions too. EBIDTA/ton increased 15% qoq to Rs6,985/ton on the back of lower raw material and power costs. This was higher than our estimate of Rs6,765/ton and led to a jump in operating profit to Rs17bn. The sharp decline in raw material costs was a positive surprise. The decrease in raw material costs was due to a decline in coking coal costs from US$202/ton to US$180/ton. Iron ore costs remained flat on a qoq basis at Rs3,200/ton. Power costs too were lower on a qoq basis leading to margin expansion for JSW.
Per ton analysis
| (Rs mn) |
Q4 FY13 |
Q3 FY13 |
% qoq |
Q4 FY12 |
% yoy |
| Steel production (‘000 tons) |
2,110 |
2,094 |
0.8 |
2,070 |
1.9 |
| Steel sales (‘000 tons) |
2,430 |
2,170 |
12.0 |
2,310 |
5.2 |
| Sales as a % of production |
115.2 |
103.6 |
|
111.6 |
|
| Net realisations |
38,234 |
38,214 |
0.1 |
41,319 |
(7.5) |
| Cost per ton (Rs/ton) |
|
|
|
|
|
| Raw material |
23,924 |
24,671 |
(3.0) |
27,012 |
(11.4) |
| Personnel cost |
661 |
739 |
(10.6) |
662 |
(0.1) |
| Power and fuel costs |
1,908 |
2,270 |
(16.0) |
2,089 |
(8.7) |
| Other overheads |
4,757 |
4,480 |
6.2 |
4,405 |
8.0 |
| Total cost |
31,249 |
32,161 |
(2.8) |
34,168 |
(8.5) |
| EBIDTA/ton |
6,985 |
6,054 |
15.4 |
7,151 |
(2.3) |
Source: Company, India Infoline Research
² The company has planned a capex of Rs130bn for the completion of Cold Rolling Mill (CRM-2) Phase 1 and Phase 2 at Vijayanagar which will be completed during FY14-15 and Non-Grain Oriented Electrical Steel project which will be completed in FY15. Expansion of coated products facility in Maharashtra from 0.92mn tons to 1.2mn tons is scheduled for completion in Q1 FY14. The company has spent a total of Rs4.5bn in the current fiscal and plans to spend the remaining amount over the course of two years.
² The management is reasonably confident of meeting its iron ore requirements for FY14. It expects category ’A’ mines in Karnataka to produce 5mtpa, category ‘B’ mines to produce ~4.5mn tons and NMDC’s to produce 9-10mtpa of iron ore in FY14. This would be in addition to the 6-7mn tons of sub-grade iron ore dumps currently available in the market. Thus it expects a total of 24-27mtpa of iron ore to be available from Karnataka in FY14. The management has guided for saleable steel production of 9.25mn tons and sales of 9.75mn tons.
² We expect the iron ore supply in the region would continue to remain tight leading to lower volume growth than that expected by the company. Ispat continues to remain a drag in the near term as we do not expect any meaningful improvement in profitability till the modernization initiatives are completed by FY15 and the supply of iron ore from Karnataka restarts. We expect consolidated debt/equity would stay at 1.3-1.5x over the next two years as free cash flow remains negative due to the capex to be incurred over the next two years. We believe that iron ore prices would not drop below US$100/ton and the tight iron ore market scenario would continue in FY14. We maintain our Market Performer rating with a revised 9-month price target to Rs702.
Results table (Standalone)
| (Rs m) |
Q4 FY13 |
Q3 FY13 |
% qoq |
Q4 FY12 |
% yoy |
| Net sales |
92,909 |
82,925 |
12.0 |
95,447 |
(2.7) |
| Material costs |
(58,136) |
(53,537) |
8.6 |
(62,398) |
(6.8) |
| Personnel costs |
(1,606) |
(1,604) |
0.1 |
(1,528) |
5.1 |
| Power and fuel costs |
(4,636) |
(4,926) |
(5.9) |
(4,827) |
(4.0) |
| Other overheads |
(11,559) |
(9,721) |
18.9 |
(10,176) |
13.6 |
| Operating profit |
16,973 |
13,136 |
29.2 |
16,518 |
2.8 |
| OPM (%) |
18.3 |
15.8 |
243 bps |
17.3 |
96 bps |
| Depreciation |
(5,274) |
(4,975) |
6.0 |
(4,720) |
11.7 |
| Interest |
(4,425) |
(4,546) |
(2.7) |
(3,677) |
20.3 |
| Other income |
537 |
566 |
(5.1) |
483 |
11.2 |
| PBT |
7,811 |
4,181 |
86.8 |
8,604 |
(9.2) |
| Tax |
(3,377) |
460 |
(834.2) |
(2,066) |
63.4 |
| Effective tax rate (%) |
43.2 |
(11.0) |
|
24.0 |
|
| Adjusted PAT |
4,434 |
4,641 |
(4.5) |
6,538 |
(32.2) |
| Adj. PAT margin (%) |
4.8 |
5.6 |
(83) bps |
6.8 |
(208) bps |
| Extra ordinary items |
1,299 |
(3,274) |
– |
1,992 |
(34.8) |
| Reported PAT |
5,732 |
1,367 |
319.2 |
8,530 |
(32.8) |
| Ann. EPS (Rs) |
79.5 |
83.2 |
(4.5) |
117.2 |
(32.2) |
Source: Company, India Infoline Research
Results table (Consolidated)
| (Rs m) |
Q4 FY13 |
Q3 FY13 |
% qoq |
Q4 FY12 |
% yoy |
| Net sales |
98,982 |
88,879 |
11.4 |
103,610 |
(4.5) |
| Material costs |
(61,830) |
(57,765) |
7.0 |
(66,218) |
(6.6) |
| Personnel costs |
(2,210) |
(2,315) |
(4.6) |
(2,258) |
(2.1) |
| Power and fuel costs |
(4,836) |
(5,125) |
(5.6) |
(5,141) |
(5.9) |
| Other overheads |
(12,774) |
(10,363) |
23.3 |
(11,120) |
14.9 |
| Operating profit |
17,332 |
13,310 |
30.2 |
18,873 |
(8.2) |
| OPM (%) |
17.5 |
15.0 |
253 bps |
18.2 |
(71) bps |
| Depreciation |
(5,947) |
(5,627) |
5.7 |
(5,276) |
12.7 |
| Interest |
(5,074) |
(5,167) |
(1.8) |
(4,550) |
11.5 |
| Other income |
28 |
82 |
(65.6) |
243 |
(88.4) |
| PBT |
6,340 |
2,599 |
143.9 |
9,290 |
(31.8) |
| Tax |
(3,761) |
172 |
– |
(3,097) |
21.4 |
| Effective tax rate (%) |
59.3 |
(6.6) |
|
33.3 |
|
| Other provisions / minority etc |
(321) |
(823) |
(61.0) |
(497) |
(35.4) |
| Adjusted PAT |
2,258 |
1,947 |
15.9 |
5,696 |
(60.4) |
| Adj. PAT margin (%) |
2.3 |
2.2 |
9 bps |
5.5 |
(322) bps |
| Extra ordinary items |
702 |
(2,685) |
(126.1) |
2,001 |
(64.9) |
| Reported PAT |
2,959 |
(737) |
(501.5) |
7,697 |
(61.6) |
| Ann. EPS (Rs) |
40.5 |
34.9 |
15.9 |
102.1 |
(60.4) |
Source: Company, India Infoline Research
Financial summary
| Y/e 31 Mar (Rs m) |
FY12 |
FY13E |
FY14E |
FY15E |
| Revenues |
343,681 |
382,096 |
383,309 |
443,539 |
| yoy growth (%) |
42.6 |
11.2 |
0.3 |
15.7 |
| Operating profit |
61,019 |
65,011 |
65,663 |
74,690 |
| OPM (%) |
17.8 |
17.0 |
17.1 |
16.8 |
| Pre-exceptional PAT |
13,626 |
13,296 |
15,508 |
20,609 |
| Reported PAT |
5,377 |
9,602 |
15,508 |
20,609 |
| yoy growth (%) |
(22.3) |
(2.4) |
16.6 |
32.9 |
|
|
|
|
|
|
| EPS (Rs)* |
61.1 |
59.6 |
69.5 |
92.4 |
| P/E (x) |
11.3 |
11.5 |
9.9 |
7.4 |
| Price/Book (x) |
0.9 |
0.9 |
0.8 |
0.8 |
| EV/EBITDA (x) |
5.5 |
5.8 |
6.1 |
5.3 |
| Debt/Equity (x) |
1.3 |
1.4 |
1.4 |
1.3 |
| RoE (%) |
8.2 |
7.8 |
8.6 |
10.6 |
| RoCE (%) |
11.0 |
10.2 |
9.6 |
10.6 |
Source: Company, India Infoline Research