JSW Steel (Q2 FY14)

India Infoline News Service | Mumbai |

On a consolidated basis, topline growth stood at 3.6% yoy to Rs102.7bn. Operating profit for the quarter stood at Rs18.7bn.

CMP Rs862, Target Rs676, Downside 21.6%

  • JSW managed to report a strong growth in topline led by some inventory liquidation during the quarter. The company managed to register a sales volume growth of 22.7% qoq to 3.13mn tons, above our estimate of 2.9mn tons. The outperformance was led by strong inventory liquidation, as saleable steel production growth was lower at 4.2% qoq to 2.98mn tons. The increase in production volumes was lower than our estimate. Blended realizations were flat on a qoq basis against our expectation of 2% increase due to lower share of VAPs. Standalone revenues grew by 29.5% yoy to Rs114.9bn, higher than our estimate of Rs108.1bn. The company managed to export 0.87mn tons of steel, accounting for 22% of total sales in the standalone entity and 27% in the consolidated entity. The share of exports in the standalone entity increased from 10% in Q1 FY14 to 22% in Q2 FY14. The company has been reducing its sales in North India due to the high transportation cost in the country.


  • Operating profit of Rs22.3bn too was higher than our estimate of Rs19.9bn, largely due to the jump in sales volume. EBIDTA/ton improved by 4.1% qoq to Rs7,137/ton against our expectation of Rs6,874/ton. The outperformance is largely due to higher volumes and a decline in power costs. Power costs per ton of saleable steel declined 14.8% qoq, which was a surprise for us. However, raw material costs per ton of saleable steel increased 3.2% qoq on account of an increase in landed coking coal prices. The depreciation in the rupee led to an increase in coking coal costs.

Per ton analysis
(Rs mn)
Q2 FY14
Q2 FY13
% yoy
Q1 FY14
% qoq
Steel production ('000 tons)
2,980
2,170
37.3
2,860
4.2
Steel sales ('000 tons)
3,130
2,170
44.2
2,550
22.7
Sales as a % of production
105.0
100.0

89.2

Net realisations
36,695
40,880
(10.2)
36,699
(0.0)
Cost per ton (Rs/ton)





Raw material
22,238
26,058
(14.7)
21,540
3.2
Personnel cost
623
810
(23.1)
821
(24.1)
Power and fuel costs
2,814
2,281
23.4
3,302
(14.8)
Other overheads
3,883
4,698
(17.3)
4,176
(7.0)
Total cost
29,558
33,847
(12.7)
29,839
(0.9)
EBIDTA/ton
7,137
7,033
1.5
6,859
4.1
Source: Company, India Infoline Research
  • JSW reported a profit of Rs1bn in its bottomline due to a forex loss of Rs8.4bn. 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. The company has hedged all its receivables and payables by the end of October to avoid the impact of the sharp change in forex. The company changed its hedging policy in the middle of the quarter. Nearly 2/3rd of short term forex exposure was hedged at the rate of 65.7 at the end of September. Due to the appreciation in the rupee by the end of the quarter, the company has to take more forex loss in Q2 FY14.


  • Debt for the company has increased sharply over the last six months due to an increase in its receivables. Due to the sluggish demand in the domestic market, the company has to increase its credit line to its customers. Due to the rising debt, JSW has reduced its capex guidance for FY14 from Rs50bn to Rs40bn. The company has pushed back the capex related to its sinter and coke oven plant at Vijaynagar. The coke oven and the pellet plant at Dolvi are expected to be commissioned by Q4 FY14.

  • The management is reasonably confident of meeting its iron ore requirements for FY14. The company has indicated that 14 miners with a capacity of ~6.4mtpa 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)
80,031
53,875
48.5
68,818
16.3
Pipes sales (tons)
8,466
24,590
(65.6)
16,369
BSE 254.25 3 (1.19%)
NSE 253.75 2.85 (1.14%)

***Note: This is a NSE Chart

 

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