MOSL: JSW STEEL (Buy)-International subsidiaries drag performance
JSW Steel: International subsidiaries drag performance
(JSTL IN, Mkt Cap USD9.2b, CMP INR272, TP INR320, 18% Upside, Buy)
Better steel prices to drive margin improvement; Dolvi expansion delayed
- JSW Steel's (JSTL) third-quarter result reflects the challenges faced by the industry, with S/A EBITDA/ton at INR5,998 dropping to the lowest level in the past 15 quarters due to a sharp decline in steel prices.
- Prices have recovered sharply over the past two months, strengthening the margin outlook. We estimate EBITDA/t to improve ~50% QoQ to INR9,000 in 4QFY20. We, however, cut our estimate marginally for FY21 to factor in the delay in the commissioning of the Dolvi plant. Maintain Buy.
Weak EBITDA due to lower steel price, losses in international business
Consol. EBITDA was down 51% YoY (-3% QoQ) at INR22.0b (our estimate: INR26.8b) and PBT declined 81% YoY (-34% QoQ) to INR4.6b due to lower margin. Consol. adjusted PAT dropped 99% YoY to INR234m (our estimate: INR4.6b) due to the severe loss in the international subsidiaries.
- Standalone (S/A) sales volumes were up 10% YoY (+12% QoQ) at 4.0mt, driven by exports (+163% YoY), while domestic volumes declined 8% YoY. Crude steel production also declined 5% YoY (+4.7% QoQ) to 4.02mt.
- Realization fell 23% YoY (-8% QoQ) to INR38,504/t (our estimate: INR39,700).
- EBITDA/t declined significantly to INR5,998/t (-50% YoY, -7% QoQ) due to lower realization, partly offset by reduced costs.
- Subsidiaries incurred a loss of ~INR2.1b at the EBITDA level (v/s a profit of INR630m in 3QFY19) due to higher losses in overseas subsidiaries
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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