Standalone revenue of Rs88.7bn was higher than our estimate of Rs86.4bn due to higher than expected sales volume. The company managed to increase its sales volume by 2.9% qoq and 15.3% yoy to 2.17mn tons, marginally higher than our estimate of 2.1mn ton. The company’s production volume too remained strong at 2.17mn tons, higher by 1.3% qoq and 24.9% yoy. We are surprised by the strong volume growth reported by the company over the last two quarters as availability of iron ore remains a concern. The company till date has purchased 19.8mn tons out of the total e-auction iron ore sales of 33.3mn tons in Karnataka. The company has already received ~92% of the total purchased quantity. The impact of higher volumes on topline was somewhat offset by a decline in realizations. JSW’s blended steel realizations declined by 4.6% qoq on account of higher amount of semis and a decline in steel prices. JSW had shutdown its HSM for 21 days to raise its capacity from 3.5mtpa to 5mtpa, leading to an increase in sales of semis and inventory.
Costs for the company declined marginally by 1.7% qoq as the impact of lower raw material costs and power costs were offset by an increase in other expenditure. However, EBIDTA/ton declined sharply by 16.3% qoq to Rs7,033/tons as decline in realizations was higher than that of costs. Raw material costs declined by 2% qoq on account of a decrease in coking coal costs. Iron ore costs for the company stayed high at Rs3,400/ton during the quarter. Operating profit of Rs15.3bn was inline with our estimate and was lower by 13.9% qoq.
|(Rs mn)||Q2 FY13||Q1 FY13||% qoq||Q2 FY12||% yoy|
|Steel production ('000 tons)||2,170||2,143||1.3||1,738||24.9|
|Steel sales ('000 tons)||2,170||2,109||2.9||1,882||15.3|
|Sales as a % of production||100.0||98.4||108.3|
|Cost per ton (Rs/ton)|
|Power and fuel costs||2,281||2,428||(6.1)||2,312||(1.3)|
- On the back of stronger realizations, EBIDTA/ton increased 17.6% qoq to Rs8,406/ton in Q1 FY13 from Rs7,151 in Q4 FY12. Raw material costs per ton decreased 1.6% qoq from Rs27,012 in Q3 FY12 to Rs26,582 in Q1 FY12 inline with our expectations. We believe the decline in raw material costs is largely due to a reduction in coking coal costs as iron ore costs were flat qoq. Standalone operating profit of Rs17.7bn was higher than our estimate due to higher realizations.
- Chile operations performance was below expectations on both volume and realisations. Iron ore production during the quarter was lower by 12.4% qoq and 15.7% yoy to 170,744 tons. Shipments during the quarter remained flat yoy, but were lower by 57% qoq to 147,734 ton. Iron ore realisations declined 15.3% qoq to US$110/ton on account of the sharp fall in global iron ore prices. The reported marginal loss at operating level as iron ore prices remained subdued. We expect Q3 FY13 performance to remain the same as that of Q2 FY13. The company target to mine 1mn ton of iron ore in FY13. US plate mill capacity utilisation increased during the quarter. The company is expecting strong performance from its US operations in FY13 on the back of demand revival in the plate and pipe segment.
- JSW is still going on with the capex to increase its capacity from 10mtpa to 12mtpa and expects the new plant to be completed by end-FY13. The total capex planned for FY13 stands at Rs63bn, which includes capex for the capacity expansion, CRM complex, HSM II and the beneficiation plant. The total capex over the next 3 years is estimated at Rs130bn. JSW has in H1 FY13 incurred a capex of Rs19bn.
- On consolidated level, topline declined 4% qoq to Rs95.1bn. Contribution of Chile mines to total revenue decreased sharply on a qoq basis. JSW Ispat showed a dip in performance, reporting an operating profit of Rs2.1bn against Rs4.5bn reported in Q1 FY13. As a result, the company reported an operating profit declined by 19.8% qoq to Rs15.3bn.
- JSW was quite confident to achieve its production guidance for FY13E on expectations of an improvement in iron ore supplies. The management has stated that 3 Category ‘A’ mines with a capacity 1.4mn tons have restarted their operations and expects 7-8 other Category “A’ mines to start operations in Q3 FY13. The company has 1.8mn tons of iron ore inventory at the end of Q2 FY13. JSW believes the total output from NMDC, Category ‘A’ mines and yet to be auctioned material would be enough for it to achieve its FY13 volume guidance.
- We expect the iron ore supply in the region would continue to remain tight leading to lower volume growth than that expected by the company. In addition to this, the iron ore sourcing cost is expected to increase as the new system allows the seller to determine the base price and all the taxes are to be paid by the buyer. Ispat continues to remain a drag in the near term as we do not expect any meaningful improvement in profitability till the modernization initiatives are completed by FY15 and the supply of iron ore from Karnataka restarts. We expect consolidated debt/equity would stay at 1.2-1.3x over the next two years as free cash flow remains negative due to the capex for the 2mtpa expansion at Vijaynagar. We marginally lower our 9-month price target on JSW to Rs680; while maintaining our Market Performer rating on the stock.
|(Rs m)||Q2 FY13||Q1 FY13||% qoq||Q2 FY12||% yoy|
|Power and fuel costs||(4,949)||(5,120)||(3.3)||(4,351)||13.7|
|OPM (%)||17.2||19.6||(241) bps||17.0||22 bps|
|Effective tax rate (%)||42.9||11.3||29.7|
|Adj. PAT margin (%)||4.5||9.5||(501) bps||6.4||(188) bps|
|Extra ordinary items||4,224||
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