MOSL: JSW STEEL (Buy)-Subsidiaries led the beat in EBITDA-Margin outlook positive
​JSW Steel: Subsidiaries led the beat in EBITDA; Margin outlook positive; upgrading estimates and TP
(JSTL IN, Mkt Cap USD8.4b, CMP INR223, TP INR297, 33% Upside, Buy)
- JSW Steel's (JSTL) 1QFY18 cons. EBITDA declined 17% QoQ to INR26.2b (8% beat) due to seasonal decline in volumes and lower steel prices. Standalone EBITDA at INR22b was in-line, while the positive surprise came from subsidiaries.
- S/A sales increased 5% YoY (-11% QoQ) to 3.51mt. Consolidated sales were lower at 3.39mt due to an increase in inventories at subsidiary level. The share of exports declined 13pp QoQ to 23% due to weakness in the international market.
- S/A EBITDA/t was down 17% QoQ at INR6,262 on lower steel prices, increase in iron ore cost and only USD18/t benefit in coking coal cost.
- Subsidiaries reported EBITDA of INR4.2b v/s estimate of INR1.7b. JSW Coated benefited from conversion arrangement with Uttam. Conversion volumes will inch up further and drive EBITDA.
- US Plate mill has turned around, with CU increasing 9pp QoQ to 28%, which contributed USD5.1m to EBITDA. It is expected to be sustainable.
- Other subsidiaries (Salav, Industrial gases, etc.) posted strong EBITDA of INR1.8b. We believe that at least 30-40% of this is sustainable.
- Net debt increased by INR17b QoQ on working capital increase.
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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