MOSL: JSW STEEL (Buy)-Margins trajectory remains robust; Strong growth outlook
JSW Steel: Margins trajectory remains robust; Strong growth outlook; Maintain Buy
(JSTL IN, Mkt Cap USD11.7b, CMP INR354, TP INR444, 26% Upside, Buy)
- JSW Steel’s (JSTL) 2QFY19 consol. EBITDA of INR49.1b (-4% QoQ) was 7% ahead of our estimate. We believe the performance was strong amid a seasonally weak quarter. Standalone (S/A) EBITDA/ton declined by ~INR470 to INR12,126, led by a marginal increase in RM and power & fuel costs. Consol. PAT of INR21.3b (-10% QoQ) exceeded our estimate by 10%.
- S/A steel sales increased 3% QoQ to 3.96mt, while realization was unchanged at ~INR49,700/t. Steel spreads (realization – RM cost) declined ~INR280/t QoQ, while conversion cost increased ~INR190/t QoQ. EBITDA was unchanged QoQ at INR48b (9% beat).
- EBITDA of subsidiaries was down 63% QoQ to INR1b on account of (a) the shrinkage of spreads in the coated business and (b) the drag from newly acquired assets. Both are likely to normalize in a few quarters.
- Net debt increased ~INR71b to INR554b (incl. acceptances) in 1HFY19 due to working capital increase, capex, acquisitions and FX impact.
- JSTL completed the acquisition of Acero (US), Aferpi (Italy) and Monnet Ispat (~26% stake). The acquisitions will add ~4mt of steel making/rolling capacity with potential for expansion. We believe these acquisitions are a good bet, given that the initial investment is low and the capex is staggered. Organic growth of 6.7mtpa at Dolvi and Vijaynagar will boost volumes in FY21.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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