posted another strong rise in production for October 2018 with crude steel production rising 7.7% yoy to 1.45mn tonnes. Production for flat steel products rose 3.5% yoy to 1.01mn tonnes, while production for long steel products grew 34.1% yoy to 0.35mn tonnes supported by robust infrastructure execution.
This brings the total production for M7FY19 to 9.75mn tonnes (up 5.9% yoy), with 2.19mn tonnes for long steel products (up 17.3%yoy) and 6.84mn tonnes for flat steel products (up 3.2% yoy).
Earnings for JSW Steel in H1FY19 have remained strong owing to firm demand and sharp rise in realizations. Revenue and PAT for H1FY19 stood at Rs42,071 (up 25.2% yoy) and Rs4,426cr (up 203% yoy), respectively. EBITDA margins for Q2FY19 were lower by 212bps qoq owing to seasonal factors as well as a sharp rise in raw material costs.
However, given the seasonal improvement in offtake expected in H2FY19, steel companies (including JSW Steel) are likely to go for price hikes negating the effect of higher raw material costs.
JSW Steel Ltd is expected to see revenue CAGR of 9% aided by (a) ~5% CAGR volume growth in the sale of steel products supported by government spending on infrastructure. Firm realizations would also help in EBITDA margins expanding by 448bps over FY18-20E. JSW Steel would see PAT CAGR of 23.6% over FY18-20E with an EBITDA margin of 25.2% in FY20E. The stock is currently trading at 10.3x FY20E EPS.
JSW Steel has a domestic crude steel capacity of 18mn tonnes per annum (MTPA) at present. The company aims to expand this production capacity to 23MTPA by 2020. The company owns a plate mill in the US and has recently acquired an integrated steel plant. This brings the total capacity based in the US to 4MTPA.
JSW Steel and Aion Capital have formed a consortium that has taken over Monnet Ispat. This acquisition is value-accretive given the low value of the bid (bid implies ~76% haircut to lenders). JSW Steel has also acquired Acero Junction (in the US) and Aferpi (in Italy). The crude steel production for H1FY19 for JSW Steel stood at 7.86mn tonnes, an increase of 5.6% yoy. Production of flat steel stood at 5.65mn tonnes (up 3.2% yoy), while production of long steel stood at 1.61mn tonnes (up 14.6% yoy).