1

SYNOPSIS

JSW Steel Limited, belonging to JSW group, part of the O P Jindal Group, is one of the cost steel producers in the world. It manufactures wide range of products such as hot rolled steel, cold rolled steel, galvanised steel and pre-painted galvanised steel. JSW Steel has largest galvanizing and color coating production capacity in the country and is the largest of galvanized products with presence in over 100 countries across five continents. By 2020, the Company aims to produce 34 million tons of steel annually with Greenfield integrated steel plants coming up in West Bengal and Jharkhand. Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 14% over 2010 to 2013E respectively. During the quarter, the company has reported PAT increased to Rs.4915.20 million from Rs.2886.20 million in previous year same quarter. The Company has acquired mining assets in Chile, USA and Mozambique. JSW Steel Ltd. is one among the largest Indian Steel Companies in India with capacity of 7.8MT.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 241160.90 49467.70 16593.80 78.61 9.16

FY 12E 294216.30 56015.96 19477.57 91.11 7.90

FY 13E 338348.74 63024.05 22803.87 106.10 6.79

Stock Data:

Sector: Steel

Face Value Rs. Rs.10.00

52 wk. High/Low (Rs.) 1400.00/594.65

Volume (2 wk. Avg.) 602000

BSE Code 500228

Market Cap (Rs.In mn) 160646.40

Share Holding Pattern

1 Year Comparative Graph

JSW Steel Ltd BSE SENSEX

C.M.P : Rs.720.00 Target Price : Rs.814.00 Date : 03rd Sep 2011 BUY

JSW STEEL LTD

Result Update: Q1 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

JSW Steel 720.00 160646.40 78.61 9.16 1.03 122.50

SAIL 109.45 452072.3 11.05 9.90 1.22 24.00

Tata Steel 488.50 468576.3 78.25 6.24 1.00 120.00

Sesa Goa 231.25 200979.7 35.44 6.53 1.73 350.00

Investment Highlights

Q4 FY12 Results Update

JSW STEEL LTD disclosed results for the quarter ended June 2011. Net sales for

the quarter moved up 53% to Rs.74386.90 million as compared to Rs.48580.00

million during the corresponding quarter last year. During the quarter, the

company has reported PAT increased to Rs.4915.20 million from Rs.2886.20

million in previous year same quarter. The Basic EPS of the company stood at

Rs.21.74 for the quarter ended June 2011.

Quarterly Results - Consolidate (Rs in mn)

As At June-11 June-10 %change

Net sales 74386.90 48580.00 53

PAT 4915.20 2886.20 70

Basic EPS 21.74 15.79 38

3

Basic EPS of the company stood at Rs.21.74

4

Break up of Expenditure

Expenditure for the quarter stood at Rs.60038.60mn, which is around 59%

higher than the corresponding period of the previous year. Raw material cost of

the company for the quarter accounts for 66% of the sales of the company and

stood at Rs.48755.00mn from Rs.35255.40mn of the corresponding period of the

previous year. Other Expenditure cost increased 23%YoY to Rs.8049.8mn from

Rs.6551.00mn and accounts for 11% of the revenue of the company for the

quarter.

OPM and NPM for the quarter stood at 20% and 7% respectively from 22% and 6%

respectively of the same period of the last year.

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FY11 Performance

Net profit of the company has increased at 10% yoy Rs.17539.80mn from

Rs.15975.50mn of same period of last year. Total revenue for the year stood at

Rs.241160.90 mn from Rs.190737.70 which is 26% increased than that of a year

ago. EPS for the year stood at Rs.78.61 per equity share of Rs.10.00 each.

Operating profit of the company stood at Rs.49467.70mn. OPM for the year stood

at 20.51%. Expenditure of the company increased 29% YoY to Rs.192375.00 mn.

Interest expenses for the year stood at Rs.9454.10mn.

Dividend Declaration

The Company has recommended dividend of Re. 1 Per share on 10%

Cumulative Redeemable Preference shares of Rs. 10 each and dividend of Rs.

12.25 Per equity share of Rs 10 each for the year 2010-11, subject to the

approval of members at the Annual General Meeting.

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Company Profile

Forging ahead, JSW Steel Ltd. is one among the largest Indian Steel Companies in

India today. India’s third largest steelmaker, JSW Steel Ltd. consists of the most

modern, eco-friendly steel plants with the latest technologies for both upstream &

downstream processes.

JSW is part of US $10 billion O.P.Jindal Group. It has grown to US$ 5 billion in little

over a decade and has presence across various sectors – Steel, Energy, Minerals, Port

& Infrastructure, Cement, Aluminium and IT.

JSW Steel, the flagship company of the JSW Group, is today an integrated steel

manufacturer. JSW Steel is the largest private sector steel manufacturer in terms of

installed capacity.

JSW Steel is one of the lowest cost steel producers in the world. It has established a

strong presence in the global value-added steel segment with the acquisition of steel

mill in US and a service center in UK. JSW Steel has also formed a joint venture for

setting up a steel plant in Georgia. The Company has also tied up with JFE Steel Corp,

Japan for manufacturing the high grade automotive steel. JSW Steel has recently

acquired a majority stake in Ispat Industries Ltd. This will make JSW Steel India’s

largest steel producer with a combined capacity of 14.3 MTPA by March 2011. The

Company has also acquired mining assets in Chile, USA and Mozambique.

JSW Steel offers the entire gamut of steel products – Hot Rolled, Cold Rolled,

Galvanized, Galvalume, Pre-painted Galvanised, Pre-painted Galvalume, TMT Rebars,

Wire Rods & Special Steel Bars, Rounds & Blooms. JSW Steel has manufacturing

facilities at Toranagallu in Karnataka, Vasind & Tarapur in Maharashtra and Salem in

Tamil Nadu.

By 2020, the Company aims to produce 34 million tons of steel annually with

Greenfield integrated steel plants coming up in West Bengal and Jharkhand.

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Manufacturing facilities

JSW Steel's manufacturing units are located in Bellary District near Bangalore, near

Mumbai and Tamil Nadu.

Its manufacturing facilities, Vijayanagar Works in Bellary district is the first greenfield

project in the world to have Corex technology to produce hot metal.

JSW Steel’s Vasind & Tarapur Works, located near Mumbai, is India’s biggest

producer and largest exporter of galvanized steel. The total capacity of this plant is 0.9

MTPA of galvanised, Galvume and colour coated cold rolled products.

The company’s Tamil Nadu plant, Salem Works manufactures pig iron, steel, billet and

rolled steel products with 1 MTPA of production capacity.

JSW Steel is India’s third largest steelmaker that has received various certifications

such as

ISO:9001 for Quality Management System

ISO:14001 for Environment Management System

OHSAS:18001 for Occupational Health & Safety Management System

Awards

JSW Steel received CII-ITC Sustainability Award for Significant Achievement in

Economic, Environment and Social Performance.

It was honoured with CII-Exim Bank Award for significant Achievement towards

Business Excellence

The company received Gold Award in Metal and Mining Sector: for Outstanding

Achievement in Safety Management by Greentech Foundation.

Marketing Initiatives

It has also introduced B2B trading portal STEELeMART. This online trading portal

provides a platform to hundreds of steel users and traders across the country to get

the best deals on steel products.

The company has also launched JSW Shoppe at Hubli and Jaipur to expand its retail

base and ensure the easy available of quality and branded steel in all its market.

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Financial Results

12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in million) FY10A FY11A FY12E FY13E

12m 12m 12m 12m

Description

Net Sales 190737.70 241160.90 294216.30 338348.74

Other Income 4194.00 681.80 409.08 429.53

Total Income 194931.70 241842.70 294625.38 338778.28

Expenditure -148865.00 -192375.00 -238609.42 -275754.23

Operating Profit 46066.70 49467.70 56015.96 63024.05

Interest -11080.10 -9454.10 -9788.15 -10014.03

Gross Profit 34986.60 40013.60 46227.81 53010.02

Depreciation -12986.60 -15597.10 -17156.81 -18872.49

Profit before Tax 22000.00 24416.50 29071.00 34137.53

Tax -6467.10 -7822.70 -9593.43 -11333.66

Profit after Tax 15532.90 16593.80 19477.57 22803.87

Minority Interest 332.10 238.70 214.83 219.13

Share of Profit & Loss Asso

110.50 707.30 636.57 649.30

Net profit 15975.50 17539.80 20328.97 23672.30

Equity Capital 1870.50 2231.20 2231.20 2231.20

Reserves 87300.40 154367.70 173845.27 196649.14

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 85.41 78.61 91.11 106.1

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs.in million) 30-Dec-10 30-Mar-11 30-Jun-11 30-Sep-11

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 60026.40 72832.50 74386.90 84057.20

Other Income 38.10 0.00 169.80 178.29

Total Income 60064.50 72832.50 74556.70 84235.49

Expenditure -49862.10 -56212.60 -60038.60 -68506.62

Operating Profit 10202.40 16619.90 14518.10 15728.87

Interest -1968.20 -2172.00 -2619.90 -2567.50

Gross Profit 8234.20 14447.90 11898.20 13161.37

Depreciation -3906.30 -4288.00 -4401.30 -4621.37

Profit before Tax 4327.90 10159.90 7496.90 8540.00

Tax -1500.50 -2920.10 -2581.70 -2818.20

Profit after Tax 2827.40 7239.80 4915.20 5721.80

Minority Interest 60.40 83.80 -98.10 45.25

Share of Profit & Loss Asso

29.40 612.70 34.50 33.18

Net Profit 2,917.20 7,936.30 4,851.60 5,800.23

Equity Capital 2231.20 2231.20 2231.20 2231.20

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 13.07 35.57 21.74 26.00

*A=Actual, *E=Estimated

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Key Ratio

Particulars FY10 FY11 FY12E FY13E

EPS (Rs.) 85.41 78.61 91.11 106.1

EBITDA Margin (%) 24.15% 20.51% 19.04% 18.63%

PAT Margin (%) 8.14% 6.88% 6.62% 6.74%

P/E Ratio (x) 13.61 9.16 7.90 6.79

ROE (%) 17.42% 10.60% 11.06% 11.47%

ROCE (%) 16.13% 12.27% 12.89% 13.35%

EV/EBITDA (x) 4.72 3.25 2.87 2.55

Debt-Equity Ratio 1.30 0.76 0.71 0.66

Book Value (Rs.) 476.72 701.86 789.16 891.36

P/BV 2.44 1.03 0.91 0.81

Charts:

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Outlook and Conclusion

At the current market price of Rs.720.00, the stock is trading at 7.90 x FY12E and 6.79 x FY13E respectively.

Price to Book Value of the stock is expected to be at 0.91 x and 0.81 x respectively for FY12E and FY13E.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.91.11 and Rs.106.10 respectively.

The Company has recently acquired a majority stake in Ispat Industries Ltd. This will make JSW Steel India’s largest steel producer with a combined capacity of 14.3 MTPA by March 2011.

JSW Steel has largest galvanizing and color coating production capacity in the country and is the largest of galvanized products with presence in over 100 countries across five continents.

By 2020, the Company aims to produce 34 million tons of steel annually with Greenfield integrated steel plants coming up in West Bengal and Jharkhand.

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Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 14% over 2010 to 2013E respectively.

During the quarter, the company has reported PAT increased to Rs.4915.20 million from Rs.2886.20 million in previous year same quarter.

The Company has acquired mining assets in Chile, USA and Mozambique.

JSW Steel Ltd. is one among the largest Indian Steel Companies in India with capacity of 7.8MT.

On the basis of EV/EBITDA, the stock trades at 2.87 x for FY12E and 2.55 x for FY13E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.814.00 for Medium to Long term investment.

Industry Overview

Sector Structure/ Market Size

Steel industry has a major role to play in the economic growth of India. With new

global acquisitions by Indian steel giants, setting up of new state-of-the-art steel mills,

modernization of existing plants, improving energy efficiency and backward integration

into global raw material sources, India is now on the centre of the global steel map.

Consumption of steel in the construction sector, industrial applications, and transport

sector has been on the rise and special steel usage in engineering industries such as

power generation, petrochemicals and fertiliser industry is also growing.

India has retained its position as the 5th largest producer in 2010 and recorded a

growth of 11.3 per cent as compared to 2009. India has also emerged as the largest

sponge iron/direct reduced iron (DRI) producing country in the world in 2010, a rank

it has held on since 2002. Sponge iron production grew at a CAGR of 11 per cent to

reach a level of 20.74 million tonne (MT) in 2009-10 as compared to 14.83 MT in

2005-06. India is expected to become the second largest producer of steel in the world

by 2015-16, on account of growing steel demand, rich resources base of iron ore,

skilled manpower and vast experience of steel making and the huge capacity

expansion planned and being executed in the steel sector.

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With the expanding consumer market, Indian steel industry is likely to receive huge

domestic and foreign investments. Nearly 222 memorandums of understandings

(MoUs) for planned capacity of around 276 MT have been signed between the investors

and various State Governments, mostly in Orissa, Jharkhand, Chhattisgarh and West

Bengal.

India has recorded a growth of over 8.6 per cent, producing 6.35 MT of steel in March

2011 as against 5.85 MT in the corresponding month in 2010, according to World

Steel Association (WSA).

Steel exports has increased by 17.3 per cent as it reached an estimated 2.46 MT, while

steel imports were at an estimated 5.36 MT, a growth of 2.8 per cent in 2010.

Production

Crude steel production was registered at 51.57 MT during April-Dec 2010 in the

country as per Joint Plant Committee (JPC). The production is expected to be nearly

110 MT by 2012-13.

Crude steel production grew at a compound annual growth rate (CAGR) of 8.4 per cent

during the five years, 2005-06 to 2009-10. The crude steel performance accounted for

31 per cent of the total crude steel production in the country during 2009-10,

contributed largely by the strong trends in growth of the electric route of steel making,

particularly the induction furnace route, which was a key driver in the growth of the

segment. In case of total finished steel (alloy + non-alloy), production for sale was

recorded at 47.30 MT, a growth of 7.9 per cent during Apr-Dec 2010.

Steel Authority of India (SAIL) Ltd has planned to enhance its hot metal production

capacity from the level of 13.82 million tonnes per annum (MTPA) to 23.46 MTPA

under its current phase of expansion and modernisation which is expected to be

completed by financial year 2012-13. In the next phase, SAIL would increase its

capacity further to 26.18 MTPA.The indicative investment for current phase is about

US$ 13.28 billion. Additionally, approximately US$ 2.21 billion has been earmarked

for modernisation and expansion of SAIL Mines.

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NMDC Ltd plans to increase the production of iron ore from the present level of about

24 MT to 40 MT by 2014-15. Besides, setting up a 3 MTPA Integrated Steel Plant at

Nagarnar in Chhattisgarh. The environmental clearance for the plant has been

accorded by Ministry of Environment and Forests (MoEF).

Consumption

The Indian steel industry has been on a high-growth trajectory led by buoyancy in

sectors such as infrastructure and construction, oil and gas and automobiles. The

demand for steel is expected to further increase with major international automobile

manufacturers setting manufacturing facilities in India.

The consumption of steel domestically was recorded at 44.28 MT, indicating further

strengthening of demand during Apr-Dec 2010. The consumption of steel in the

country has shown an increase of 10.3 per cent during April 2010 to January 2011 as

compared to the same period of previous year.

Major Developments

The Indian steel market has witnessed the announcements of mega expansion plans

from leading domestic producers in the form of greenfield and/or brownfield projects.

Furthermore, with an expanding consumer market, the steel industry in India is likely

to receive huge domestic and foreign investments.

Posco, South Korea, plans to set up a 12 MT integrated steel plant in Orissa.

Mittal Group's announced plans to set up their 12 MT integrated steel unit in

Orissa.

Tata Steel Ltd (TSL) has taken over US$ 12 billion Anglo-Dutch giant Corus

Group Plc, transforming the former into a significant global steel producer,

which may well be regarded as a benchmark even in the history of the Indian

steel industry.

Bhilai Steel Plant (BSP), the flagship entity of the Steel Authority of India

Limited (SAIL), has secured a fresh order of exporting rails to Sri Lanka. The

order of about 14,000 tonnes is for the UIC-60 grade of rails. Earlier, the

company had received an order to supply 6,500 tonnes of rails to Sri Lanka.

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The Essar Group, through Essar Africa Holdings Ltd (EAHL), has bought 54 per

cent stake in Zimbabwe’s state-owned steelmaker, Zisco. The total deal is

valued at US$ 750 million.

The State Level Single Window Clearance Authority (SLSWCA) in Orissa has

cleared four investment proposals in the steel sector worth US$ 632.86 million.

Orissa through its nodal agency for land acquisition, Industrial Infrastructure

Development Corporation of Orissa Ltd (Idco), has allotted 20684.06 acres of

land to steel companies that have signed memorandum of understanding (MoU)

with the State. The steel sector in Orissa has already recorded an investment of

US$ 11.64 billion till the end of December 2010.

Tata Steel Ltd (TSL) and Nippon Steel Corporation (NSC) have signed a joint

venture (JV) agreement to setup India's first continuous annealing and

processing line (CAPL) for the production of 600,000 tonnes per annum of

automotive cold-rolled steel at Jamshedpur, India. TSL will hold 51 per cent

and NSC will hold 49 per cent of equity capital of the JV Company. The project

will be set up at a capital cost of approximately US$ 509.08 million and is

expected to come on stream in 2013.

NMDC Ltd has signed a pact with Russian steel and mining major Severstal to

set up a 5 MTPA steel plant in Karnataka as part of a strategy that aims to

boost the company's revenue by increasing presence in value added product

chain. It has also set up a 3 MTPA integrated steel plant at Nagarnar,

Chhattisgarh, which is likely to be commissioned in 2014.

It has also set up a 3 MTPA integrated steel plant at Nagarnar, Chhattisgarh,

which is likely to be commissioned in 2014.

Essar Steel has commissioned a state-of-the-art Compact Strip Production

(CSP) mill with a capacity of 3.5 MTPA. The CSP mill is a part of the company's

expansion plans of raising the steel production capacity at Hazira at a cost of

US$ 3.03 billion. The company has also commissioned two iron making units–a

blast furnace with a capacity of 1.73 MTPA and a DRI unit of 1.74 MTPA, a

conarc furnace of 2.5 MTPA, besides commissioning India’s first 5-metre wide

plate mill with a capacity of 1.5 MTPA and a pipe mill with an annual capacity

of 0.6 MTPA.

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Sesa Goa, a Vedanta Group company, has acquired the assets of Bellary Steel

and Alloys (BSAL) for US$ 48.94 million in a competitive bidding process

conducted by Industrial Financial Corporation of India (IFCI) Ltd.

JSW Steel plans to infuse US$ 83.54 million in Ispat industries in the next 2-3

years. JSW Steel plans to invest US$ 16.86 billion over the next 10 years to

ramp up capacity from 7.8 to 32 MTPA through greenfield and brownfield

projects.

Government Initiatives

The current policy regime allows 100 per cent foreign domestic investment (FDI) in

steel sector, as per Mr Beni Prasad Verma, Minister of State for Steel (Independent

Charge). Some multinational steel companies like POSCO and Arcelor Mittal have

signed MoU with respective to State Governments to set up steel production units in

the country. The total proposed capacity under FDI is approximately 45 MT.

Some of the initiatives undertaken by the Indian Government in the Eleventh Five

Year Plan (2007-12) to promote the steel sector include:

The Planning Commission has approved a total outlay of US$ 9.5 billion for the

development and promotion of the iron and steel sector.

The scheme for the promotion of research and development in the iron and steel

sector has been approved with a budgetary provision of US$ 24.6 million to

initiate and implement the provisions of the scheme.

National Steel Policy 2005 is under review and the process for drafting a

'National Steel Vision' has since been initiated.

Five year strategy paper has been prepared for promotion of Steel sector in the

country.

Moreover, in the Union Budget 2010-11, the Government has allocated US$ 37.4

billion to the infrastructure sector and has increased the allocation for road transport

by 13 per cent to US$ 4.3 billion which will further promote the steel industry.

Ministry of Steel in association with United Nations Development Programme (UNDP)

is carrying out a project on ‘Removal of Barriers to Energy Efficiency Improvement in

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Steel Re-rolling Mill Sector in India’ at an estimated cost of US$ 14.03 million. The

project seeks to reduce greenhouse gas emissions by providing technical assistance to

small and medium sized steel re-rolling mills in the country to enable them to adopt

more energy efficient and environmentally friendly technologies.

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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