jsw steel, 29th january 2013
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7/29/2019 JSW Steel, 29th January 2013
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Please refer to important disclosures at the end of this report 1
Quarterly performance (Standalone)
EBITDA 1,314 1,253 4.9 1,525 (13.9) 1,314
% margin 15.9 15.9 (6)bp) 17.3 (139)bp 15.9
Source: Company, Angel Research
JSW Steels 3QFY2013 standalone top-line came in lower than our expectation;
however, the bottom-line was slightly better than our expectation.
JSW Steels standalone net sales
grew by 5.3% yoy to `8,275cr, below our estimate of `8,521cr due to
lower-than-expected realizations. Net sales growth was driven by an increase
in steel volumes (+13.7% yoy to 2.17mn tonne), although the same was
partially offset by a decline in realizations (-9.5% yoy to`38,804/tonne).
JSW Steels EBITDA increased only 4.9% yoy to
`1,314cr on account of decrease in realizations. Interest expenses grew by
61.3% yoy to`455cr. Hence, the adjusted net profit (excluding exceptional items)
de-grew by 30.6% yoy to`464cr (our estimate was of`451cr).
JSW Steel stated that 6 A
category mines, with a capacity of 3.3mtpa, have opened up while another4 mines with a capacity of 1.8mtpa are at various stages of approvals. For B
category mines, 20 mines received R&R approvals; however, there is no clarity
on timelines of production from these mines.
JSW Steel aims to raise utilization levels at its Vijaynagar
plant during FY2014. However, we believe increasing steel production
meaningfully during FY2014 would remain a challenge until there is significant
rise in iron ore supplies from Karnataka mines. Although we expect iron ore
supplies in Karnataka to improve gradually during FY2014, there is lack of
clarity on the timelines and production from category B mines. Moreover, we
opine that JSW Ispats merger with JSW Steel is likely to be value-destructive for
JSW Steels shareholders. The stock is currently trading at 4.9x FY2014EV/EBITDA.
Key financials (Consolidated)
% chg 26.3 44.0 13.7 3.6
% chg 7.4 3.6 4.7 5.0
OPM (%) 20.4 17.8 16.5 18.2
P/E (x) 11.1 15.5 10.5 9.6
P/BV (x) 1.2 1.2 1.1 1.0
RoE (%) 14.2 7.8 10.7 10.7
RoCE (%) 10.5 10.8 9.6 10.4
EV/Sales (x) 1.4 1.0 0.9 0.9
EV/EBITDA 6.7 5.9 5.5 4.9
Source: Company, Angel Research
CMP `869
Target Price -
Investment Period -
Stock Info
Sector
Net Debt (` cr) 18,739
Bloomberg Code JSTL@IN
Shareholding Pattern (%)
Promoters 38.1
MF / Banks / Indian Fls 5.3
FII / NRIs / OCBs 20.6Indian Public / Others 36.1
Abs. (%) 3m 1yr 3yr
Sensex 7.9 16.6 23.3
JSW Steel 18.7 31.4 (12.1)
10
20,103
6,075
JSTL.BO
19,409
1.5
894/566
205,903
Steel
Avg. Daily Volume
Market Cap (` cr)
Beta
52 Week High / Low
Face Value (`)
BSE Sensex
Nifty
Reuters Code
Tel: 022- 39357800 Ext: 6821
bhaveshu.chauhan@angelbroking.com
Tel: 022- 39357600 Ext: 6841
Vinay.rachh@angelbroking.com
Performance Highlights
3QFY2013 Result Update | Steel
January 28, 2013
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 2
Exhibit 1:3QFY2013 performance (Standalone)
Raw material 5,354 5,167 3.6 5,655 (5.3) 16,614 14,421 15.2% of net sales 64.7 65.7 64.0 63.6 64.0
Power & fuel 493 439 12.2 496 (0.7) 1,501 1,280 17.2
% of net sales 6.0 5.6 5.6 5.7 5.7
Staff cost 160 150 6.8 176 (8.8) 510 473 7.9
% of net sales 1.9 1.9 2.0 2.0 2.1
Other expenditure 972 868 12.0 1,019 (4.6) 2,964 2,461 20.4
% of net sales 11.7 11.0 11.5 11.3 10.9
Total expenditure 6,979 6,624 5.4 7,346 (5.0) 21,589 18,635 15.9
% of net sales 84.3 84.3 83.2 82.6 82.6
Other operating income 18 17 4.0 37 (52.8) 62 29 114.3
EBITDA margins (%) 15.9 15.9 0.06 17.3 17.6 17.5 (0.16)
Interest 455 282 61.3 421 8.0 1,282 713 79.8
Depreciation 498 444 11.9 481 3.4 1,446 1,236 17.0
Other income 57 1 7,348.7 78 (27.7) 207 54 283.6
Exceptional items 327 0 422 497 513 (3.1)
% of net sales 1.1 6.7 12.7 6.1 6.8
Tax (46) (141) (67.4) 302 (115.3) 365 161 126.8
% of PBT (50.7) (26.8) 26.8 22.9 10.5
Source: Company, Angel Research
Exhibit 2:3QFY2013 Actual vs. Angel estimates (Standalone)
EBITDA 1,314 1,474 (10.9)
EBITDA margin (%) 15.9 17.3 (143)bps
Source: Company, Angel Research
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 3
Result highlights
JSW Steels standalone net sales grew
by 5.3% yoy to `8,275cr, below our estimate of `8,531cr due to lower-than-
expected realizations. Net sales growth was driven by an increase in steel volumes
(+13.7% yoy to 2.17mn tonne), although the same was partially offset by a
decline in realizations (-9.5% yoy to`38,804/tonne).
Exhibit 3:Higher sales volumes...
Source: Company, Angel Research
Exhibit 4:...Partially offset by lower realizations...
Source: Company, Angel Research
Exhibit 5:...resulted in net revenue growth of 5.3% yoy
Source: Company, Angel Research
JSW Steels EBITDA increased only 4.9%
yoy to`1,314cr in spite of a 13.7% yoy increase in volumes due to decrease in
realizations.
Interest expenses grew by 61.3% yoy to
`455cr. The company reported an exceptional item related to forex loss of`327cr.
Hence, the adjusted net profit (excluding exceptional items) de-grew by 30.6% yoy
to`464cr (our estimate was of`451cr). The reported net profit was however down
79.5% yoy to`137cr.
1.7 1.71.9 1.9
2.32.1 2.2 2.2
(30.0)
0.0
30.0
60.0
0.0
0.4
0.8
1.2
1.6
2.0
2.4
2.8
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
(%)
(mntonnes)
Sales Volume (LHS) yoy change (RHS)
40,577
43,13042,831 42,901
43,003 42,900
41,884
38,804
(25)
0
25
36,000
37,000
38,000
39,000
40,000
41,000
42,000
43,000
44,000
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
(%)
(`/tonne)
Revenue/tonne (LHS) yoy change ( RHS)
7,032 7,065 7,6257,860
9,5119,030 8,834
8,275
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
0
1,500
3,000
4,500
6,000
7,500
9,000
10,500
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
(%)
(`c
r)
Revenue (LHS) yoy change (RHS)
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 4
Exhibit 6:Adjusted net profit stood at `464cr
Source: Company, Angel Research
On the iron ore situation inKarnataka, the company stated that 6 A category mines, with a capacity of
3.3mtpa, have opened up while another 4 mines with a capacity of 1.8mtpa are at
various stages of approval. For B category mines, 20 mines received R&R
approvals; however, there is no clarity on timelines of production from these
mines.
On the projects front, the company is implementing various projects which are
likely to take the companys share of value-added products to 40-50% of the total
capacity over the coming two years.
833
578 640 668 553
861
400464
0
3
6
9
12
15
-
200
400
600
800
1,000
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
(%)
(`cr)
Adjusted net profit (LHS) margin (RHS)
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 5
Investment rationale
JSW Steel had expanded its capacity by
3.2mn tonne during FY2012, taking its total capacity to 11mn tonne. Further, JSW
Steel is expanding capacity at its Vijaynagar plant from 10mn tonne to 12mn
tonne by FY2014-15.
Although JSW Steel has expanded its capacity, its
Vijaynagar plant (capacity 10mn tonne) continues to operate at lower utilization
levels on account of shortage of iron ore due to mining ban in Karnataka.
Although we expect iron ore supplies to improve gradually during FY2013 as
category A and B mines commence operations, there is lack of clarity on the
timelines and anticipated production from these mines. Procedural delays in the
commencement of operations from Karnataka mines could result in higher iron
ore costs/lower utilization for JSW Steel.
JSW Steel is expected to merge with
JSW Ispat over the coming one year. However, JSW Ispats margins are much
lower compared to JSW Steels standalone margins. Given the commodity nature
of the business, JSW Steels Management is not expected to turnaround JSW Ispats
loss making plants in the near-term, in our opinion. Further, JSW Ispats debt will
raise debt-equity ratio of the merged entity. Hence, JSW Ispats merger with JSW
Steel is likely to be value-destructive for JSW Steels shareholders (at least during
our investment horizon).
Outlook and valuationJSW Steel aims to raise utilization levels at its Vijaynagar plant during FY2014.
However, we believe increasing steel production meaningfully during FY2014
would remain a challenge until there is significant rise in iron ore supplies from
Karnataka mines. Although we expect iron ore supplies in Karnataka to improve
gradually during FY2014, there is lack of clarity on the timelines and anticipated
production from category B mines. Procedural delays in the commencement of
operations from Karnataka mines could result in higher iron ore costs/lower
utilization for JSW Steel. Moreover, we opine that JSW Ispats merger with JSW
Steel is likely to be value-destructive for JSW Steels shareholders. The stock is
currently trading at 4.9x FY2014 EV/EBITDA.
Exhibit 7:EPS Angel forecast vs. consensusFY2013E 82.4 73.6 11.9
FY2014E 90.3 89.8 0.6
Source: Bloomberg, Angel Research
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 6
Exhibit 8:P/E band
Source: Bloomberg, Angel Research
Exhibit 9:EV/EBITDA band
Source: Bloomberg, Angel Research
Exhibit 10:P/BV band
Source: Bloomberg, Angel Research
0
200
400
600
800
1,000
1,200
1,400
1,600
Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13
(`)
6x 9x 12x 15x
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13
(`
cr)
2x 4x 6x 8x 10x
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13
(`)
0.5x 1.0x 1.5x 2.0x
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 7
Exhibit 11:Recommendation summary
SAIL 90 - Neutral 37,236 - 13.3 13.0 0.9 0.9 8.0 8.4 6.9 6.7 6.1 6.2Tata Steel 406 463 Accum 36,493 14 17.1 8.4 0.8 0.8 6.4 5.4 4.9 9.3 7.2 10.0
Source: Company, Angel Research
Incorporated in 1994, JSW Steel is India's second largest private sector steel maker
with a steel making capacity of 11mn tonne. The company has the most modern
steel plants with the latest technologies for both upstream and downstream
processes. The company has an iron ore mine in Karnataka which fulfills 15% of its
requirement. During FY2011, the company acquired 49% stake in JSW Ispat foran enterprise value of US$3bn and is now expected to be merged with JSW Steel
during CY2013. The combined capacity of both companies would be 14mn tonne.
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 8
Profit & loss statement (Consolidated)
Less: Excise duty 1,178 1,254 1,968 2,596 2,891 2,996
Other operating income 49 60 244 - 64 65
% chg 27.9 19.0 27.2 42.6 13.9 3.6
Total Expenditure 12,953 14,887 19,238 28,266 32,672 33,239
Net Raw Materials 9,619 11,231 14,774 21,928 24,819 25,100
Other Mfg costs 2,815 3,176 3,824 5,492 6,838 7,086
Personnel 519 480 641 846 1,016 1,053
% chg (14.3) 36.5 19.6 25.4 5.9 14.2
(% of Net Sales) 18.8 21.5 20.4 17.8 16.5 18.2
Depreciation& Amortization 988 1,299 1,560 1,933 2,344 2,632
% chg (27.1) 39.0 19.3 26.0 (1.2) 15.3
(% of Net Sales) 12.6 14.7 13.9 12.1 10.5 11.7
Interest & other Charges 1,156 1,108 1,060 1,427 1,703 1,681
Other Income 272 128 190 77 251 276
(% of PBT) 24.5 7.2 7.8 2.7 9.4 8.3
Share in profit of Associates - - - - - -
% chg (54.2) 61.4 36.0 15.6 (5.4) 25.5
Extraordinary Inc/(Expense) (795) 408 - (825) - -
Tax 73 647 779 500 800 1,004
(% of PBT) 23.0 29.4 31.9 25.1 30.0 30.0
Add: Share of earnings of asso. 12 11 71 (226) (52) (357)
Less: Minority interest (MI) 21 33 (24) 19 24 30
Extraordinary Expense/(Inc.) - - - 710 - -
% chg (32.5) 11.2 47.4 (28.8) 47.3 9.6
(% of Net Sales) 6.7 6.3 7.4 3.6 4.7 5.0
% chg (50.6) 67.1 23.3 (28.8) 47.3 9.6
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with
previous year numbers
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 9
Balance sheet (Consolidated)
Equity Share Capital 187 187 284 284 284 284Reserves & Surplus 7,617 9,070 15,716 16,465 18,019 19,769
Share Warrants - - 529 - - -
Minority Interest 273 219 222 218 194 164
Total Loans 16,550 16,173 18,373 21,786 24,286 24,186
Deferred Tax Liability 1,277 1,685 2,049 2,725 2,725 2,725
Other Long term liabilities - - 773 472 472 472
Long term provisions - - 23 35 35 35
Gross Block 22,389 26,792 32,684 41,446 47,246 52,746
Less: Acc. Depreciation 4,080 5,339 6,873 8,877 11,222 13,854
Capital Work-in-Progress 9,585 6,956 5,983 2,832 2,332 1,832
Goodwill 783 899 1,093 1,244 1,244 1,244
Investments 397 628 2,914 2,090 2,090 2,090
Cash 509 303 2,036 3,047 6,053 5,222
Loans & Advances 1,243 1,604 1,203 2,187 2,187 2,187
Other 3,341 3,563 5,343 7,329 5,913 6,042
Mis. Exp. not written off - - - - - -
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with
previous year numbers
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 10
Cash flow statement (Consolidated)
Profit before tax 315 2,200 2,438 1,933 2,666 3,345
Depreciation 988 1,299 1,560 1,933 2,344 2,632Change in Working Capital 2,678 (471) (1,314) (1,062) 1,931 (82)
Others 874 793 570 1,054 - -
Direct taxes paid 262 459 426 407 800 1,004
(Inc.)/ Dec. in Fixed Assets (5,971) (2,736) (7,674) (4,079) (5,300) (5,000)
(Inc.)/ Dec. in Investments 115 (209) (11.6) 13.2 - -
Share of profit/ (loss) from asso. 15 13 53 144 (52) (357)
Issue of Equity - - 5,936 - - -
Inc./(Dec.) in loans 2,548 629 401 2,191 2,500 (100)
Dividend Paid (Incl. Tax) 340 57 240 350 284 265
Others 972 1,149 1,001 1,143 - -
Inc./(Dec.) in Cash (12) (147) 293 110 3,006 (831)
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with
previous year numbers
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JSW Steel | 3QFY2013 Result Update
January 28, 2013 11
Key ratios
P/E (on FDEPS) 22.8 13.6 11.1 15.5 10.5 9.6P/CEPS 12.9 5.6 5.9 7.8 4.6 4.2
P/BV 2.2 1.8 1.2 1.2 1.1 1.0
Dividend yield (%) 0.1 1.1 1.2 1.2 1.2 1.3
EV/Sales 2.0 1.7 1.4 1.0 0.9 0.9
EV/EBITDA 10.7 7.7 6.7 5.9 5.5 4.9
EV/Total Assets 1.2 1.1 0.9 0.9 0.8 0.8
EPS (Basic) 41.2 68.8 78.6 55.9 82.4 90.3
EPS (fully diluted) 38.2 63.8 78.6 55.9 82.4 90.3
Cash EPS 67.5 154.8 148.5 110.7 187.5 208.3
DPS 1.0 9.5 10.0 10.0 10.0 11.0
Book Value 401.8 480.0 704.7 738.3 807.9 886.3
EBIT margin 12.6 14.7 13.9 12.1 10.5 11.7
Tax retention ratio (%) 77.0 70.6 68.1 74.9 70.0 70.0
Asset turnover (x) 0.7 0.7 0.8 1.0 1.1 1.0
ROIC (Post-tax) 6.3 7.6 7.3 8.7 7.8 8.5
Cost of Debt (Post Tax) 6.2 4.8 4.2 5.3 5.2 4.9
Leverage (x) 2.1 1.7 0.9 1.0 0.9 0.9
Operating RoE 6.6 12.4 10.0 12.1 10.2 11.5
RoCE (Pre-tax) 8.6 10.7 10.5 10.8 9.6 10.4
Angel RoIC (Pre-tax) 14.5 17.3 15.7 14.9 12.7 13.6
RoE 10.7 16.1 14.2 7.8 10.7 10.7
Asset Turnover (Gross Block) 0.8 0.8 0.8 0.9 0.9 0.8
Inventory (days) 55 52 51 50 50 50
Receivables (days) 11 11 12 13 13 13
Payables (days) 46 43 40 30 30 30
WC cycle (days) 32 32 36 42 39 29
Net debt to equity 2.1 1.7 0.9 1.0 0.9 0.9
Net debt to EBITDA 5.2 3.7 2.8 2.7 2.5 2.3
Interest Coverage 1.7 2.5 3.1 2.9 2.4 2.8
Note: Some of the figures from FY2011 onwards are reclassified; hence some ratios may not be
comparable with previous year ratios
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JSW Steel | 3QFY2013 Result Update
January 28 2013 12
Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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Disclosure of Interest Statement JSW Steel
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors
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