MOSL: JSW STEEL (Buy)-Domestic margins stable but new assets were a drag
JSW Steel: Domestic margins stable but new assets were a drag; Strong volume growth and cost savings ahead; Maintain Buy
(JSTL IN, Mkt Cap USD9.4b, CMP INR279, TP INR322, 15% Upside, Buy)
JSW Steel's (JSTL) 3QFY19 consol. EBITDA of INR45.1b (-8% QoQ) was 2% ahead of our estimate, led by higher-than-expected steel realizations, partly offset by losses at its recently acquired subsidiaries. Standalone (S/A) EBITDA per ton of INR12,060 came in 6% higher than our estimate, given higher spreads and a favorable sales mix (export mix of 10% v/s 30% in 3QFY18). However, consol. PAT of INR16.2b (-23% QoQ) came in 6% below our estimate due to higher interest & depreciation expenses.
- S/A steel sales declined 7% QoQ to 3.68mt. Steel spreads (realization - RM cost) grew ~INR960/t QoQ. EBITDA declined 8% QoQ to INR44b (6% beat).
- EBITDA of subsidiaries was down 39% QoQ to INR630m, led by losses for the company's newly acquired assets - Acero and Aferpi.
- Margins in 4QFY19 are likely to be lower due to the steel realization decline of INR3,000-3,500/t and the increase in coking coal cost by USD10/t, partially offset by lower iron ore prices. This should set the base for margins in FY20, as we see steel prices finding a floor in the global market. Operations at Acero and Afrepi are likely to turn around over the next 2-3 quarters. Acero can be a big opportunity over the next 2-3 years, given the favorable market conditions in the US. JSTL is on track for 6.7mtpa expansion. Many small cost-saving projects are getting completed in phases.
JSW Steel Limited is a holding company. The Company is engaged in the business of production and distribution of iron and steel products. Its segments include Steel; Power (used mainly for captive consumption), and Others, which includes cement, mining and construction activities. Its product portfolio in flat and long steel products includes hot rolled (HR) coils, sheets and plates; cold rolled coils and sheets; galvanized products; galvalume products; non-grain oriented electrical steel (CRNGO); pre-painted galvanized products (color coated sheets/coils); pre-painted galvalume products; wire rods; special steel bars/wires; rounds and blooms, and angles. Its color coated products include JSW Pragati, JSW Colouron and JSW Colouron+. Its galvanized products include JSW Vishwas and GALVOS. It has plants in over six locations in India, including Vijayanagar in Karnataka, Salem in Tamil Nadu, and Tarapur, Vasind, Kalmeshwar and Dolvi in Maharashtra.
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