JSW Steel (Q1 FY14)

India Infoline News Service | Mumbai |

JSW’s revenue of Rs93.5bn was lower than our estimate due to both, lower volumes and realisation.

CMP Rs565, Target Rs580, Upside 2.7%
  • JSW’s revenue of Rs93.5bn was lower than our estimate due to both, lower volumes and realisation. Standalone steel sales volume of 2.5mn tons was lower than our expectations of 2.8mn tons. Realisations too declined 4% qoq against our expectations of no change. We believe that the decline in realizations is largely due the merger of Ispat and the demerger of value added products. This quarter’s result cannot be compared to previous quarter results due to the changes in the structure of the company. The company indicated that steel prices were flat on a qoq basis. Production volume growth remains subdued due to the tight iron ore market condition in Karnataka. The company also witnessed an increase in finished goods inventory.


  • Operating profit of Rs17.5bn was quite higher than our estimate on account of a sharp decrease in raw material costs. EBIDTA/ton declined by 1.8% qoq to Rs6,859/ton against our expectation of Rs4,930/ton. We are quite surprised by the sudden drop in raw material costs as the impact of lower coking coal prices was offset by the depreciation in the rupee. The company has indicated that the reduction in raw material prices was due to superior quality of iron ore and use of waste heat from the blast furnace. Coking coal prices declined marginally from US$180/ton in Q4 FY13 to US$175/ton in Q1 FY14. Iron ore cost for the quarter was Rs3,450/ton, higher than Rs3,150/ton due to superior quality. Power costs increased due to merger of high power used in Ispat. Other income per ton of steel was lower due to decrease in export volumes.

Per ton analysis
(Rs mn)
Q1 FY14
 Q1 FY13
% yoy
Q4 FY13
% qoq
Steel production ('000 tons)
2,860
2,143
33.5
2,110
35.5
Steel sales ('000 tons)
2,550
2,109
20.9
2,430
4.9
Sales as a % of production
89.2
98.4

115.2

Net realisations
36,699
42,853
(14.4)
38,234
(4.0)
Cost per ton (Rs/ton)





Raw material
21,540
26,582
(19.0)
23,924
(10.0)
Personnel cost
821
826
(0.6)
661
24.2
Power and fuel costs
3,302
2,428
36.0
1,908
73.1
Other overheads
4,176
4,612
(9.4)
4,757
(12.2)
Total cost
29,839
34,447
(13.4)
31,249
(4.5)
EBIDTA/ton
6,859
8,406
(18.4)
6,985
(1.8)
Source: Company, India Infoline Research
  • JSW reported a loss of Rs2.2bn in its bottomline due to a forex loss of Rs8.5bn. Interest and depreciation too jumped on a qoq basis. 33% of the company’s debt is foreign debt and hence would continue to impact the company in the near term due to the rupee depreciation.


  • JSW managed to commission key projects like the 0.6mtpa pellet plant, waste heat recovery system, BF gas utilization at CPP-3 at Vijaynagar. The company also commissioned the railway sliding at Dolvi coupled with the 0.075mtpa colour coating line at Vasind and upgraded the cold rolling mill at Tarapore. The company has planned a capex of Rs130bn for the completion of Cold Rolling Mill (CRM-2) Phase 1 and Phase 2 at Vijayanagar which will be completed during FY14-15 and Non-Grain Oriented Electrical Steel project which will be completed in FY15. The coke oven and the pellet plant at Dolvi is expected to be commissioned by Q4 FY14. Capex for FY14 is expected to be ~50bn and for FY15 is expected to be ~Rs50bn.


  • The management is reasonably confident of meeting its iron ore requirements for FY14. The company has indicated that 12 miners with a capacity of ~6mtpa capacity have restarted their operations. It expects crude steel production to grow 7% yoy to 12mn tons and saleable steel sales volume to increase 9% yoy to 11.55mn tons in FY14 in the standalone entity. The company expects to get 60-65% of the total iron ore sold in Karnataka (9mtpa from NMDC and 6mtpa from the reopened mines) and 2mtpa from iron ore mines outside Karnataka along with 5mtpa of iron ore dumps.


  • On a consolidated basis, topline growth stood at 3.6% yoy to Rs102.7bn. Operating profit for the quarter stood at Rs18.7bn. Chile operations registered a topline of US$17.4mn and an operating profit of US$0.9mn. US plate and pipe mills continued to report positive EBIDTA numbers.

US pipe and plate mill performance

Q1 FY14
 Q1 FY13
% yoy
Q4 FY13
% yoy
Plate sales (tons)
81,850
68,741
19.1
72,994
12.1
Pipes sales (tons)
9,593
22,079
(56.6)
BSE 251.25 8.60 (3.54%)
NSE 250.90 8.45 (3.49%)

***Note: This is a NSE Chart

 

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