MOSL: JSW STEEL (Buy)-Margins peak out; volume recovery to drive earnings
JSW STEEL: Margins peak out; volume recovery to drive earnings
(JSTL IN, Mkt Cap USD23.3b, CMP INR717, TP INR840, 17% Upside, Buy)
Remains best play on volumes in the sector
- JSW Steel (JSTL)’s 1QFY22 result was strong, with consol. EBITDA/PAT growing 22%/38% QoQ to INR102.7b/INR59.0b on higher steel prices. Standalone EBITDA/t was the highest ever at INR26,291.
- We expect margins to have peaked out during the quarter; however, overall earnings should remain strong, driven by volume growth. We raise our FY22E/FY23E EBITDA by 11%/8% to factor in better pricing. Maintain Buy.
Consol EBITDA up 22% QoQ, led by strong steel prices
- JSTL’s consol. rev/EBITDA/PAT was up 7%/22%/38% QoQ to INR289.0b/ INR102.7b/INR59.0b and came in +2%/+9%/+15% v/s our estimate. The beat was led by better-than-expected margins in standalone operations. This is also the highest quarterly EBITDA/PAT recorded by the company.
- Standalone (S/A) EBITDA grew 18% QoQ to INR94.9b (+10% v/s est.) despite 11% decline in volumes to 3.61mt, led by a 20% QoQ increase in realization to INR71,909/t (+2.4% v/s est.). It was partly offset by high iron ore and coking coal prices and an increase in power cost. EBITDA/t was up 33% QoQ to INR26,291/t (v/s est. INR23,878/t).
- EBITDA for subsidiaries rose 87% QoQ to INR7.8b, led by a 48% QoQ rise in EBITDA in JSW Coated (incl ACCIL) to INR9.6b. JSTL’s three key overseas subsidiaries reported EBITDA of INR2.8b in 1QFY22 (v/s loss of INR2.5b in 4QFY21), led by a turnaround in US subsidiaries. JSW Steel’s JVs (JSW Ispat and BPSL) contributed INR3.2b to PAT.
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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