JSW Steel (Q4 FY12)

India Infoline News Service | Mumbai |

The jump in production was largely due to the availability of e-auction iron ore in January.

CMP Rs653,Target price Rs702, Upside 7.5%

  • Standalone revenue of Rs95.4bn was higher than our estimate of Rs83.4bn due to higher sales volume. The company’s production volume of 2.07mn tons (+6.8% qoq) was quite higher than our estimate of 1.93mn tons, as the company was able to maintain its March levels at February utilization levels. The jump in production was largely due to the availability of e-auction iron ore in January. Liquidation of previous quarter inventory also led to an outperformance in sales volume. The company managed to register a sales volume growth of 21.1% to 2.3mn tons in Q4 FY12. Realisations for the company were flat on a qoq basis, which was lower than our expectations. We believe this is largely due to a change in product mix and higher share of exports. The share of exports was higher on a qoq basis and hence the company was not able to gain from the strong domestic realizations.
  • Costs for the company declined marginally on a qoq basis due to lower input costs and a jump in sales volume. Even though realizations were flat on a qoq basis, EBIDTA/ton increased 8.9% qoq to Rs7,151/ton in Q4 FY12 from Rs6,565 in Q3 FY12. Raw material costs per ton decreased marginally from Rs27,079 in Q3 FY12 to Rs27,012 in Q4 FY12 against out expectation of a sharper decline. Iron ore costs declined from Rs3,300/ton in Q3 FY12 to Rs3,200/ton in Q3 FY12 as NMDC lowered its iron ore fine prices during the quarter. Standalone operating profit of Rs16.5bn was lower than our estimate due to flat realizations and a lower than expected decline in raw material costs. However, it cannot be compared on a qoq basis as we have not included the forex loss of Rs5bn as an operating expense in previous quarter.
 
Per ton analysis
 
Q4 FY12
 Q3 FY12
% qoq
Q4 FY11
%  yoy
Steel production ('000 tons)
2,070
1,939
6.8
1,647
25.7
Steel sales ('000 tons)
2,310
1,908
21.1
1,733
33.3
Sales as a % of production
111.6
98.4
 
105.2
 
Net realisations
41,319
41,281
0.1
40,999
0.8
Cost per ton (Rs/ton)
 
 
 
 
 
Raw material *
27,012
27,079
(0.2)
24,502
10.2
Personnel cost
662
787
(16.0)
789
(16.1)
Power and fuel costs
2,089
2,302
(9.2)
1,773
17.8
Other overheads
4,405
4,548
(3.1)
4,389
0.4
Total cost
34,168
34,716
(1.6)
31,454
8.6
EBIDTA/ton
7,151
6,565
8.9
9,546
(25.1)
Source: Company, India Infoline Research, * forex loss of Rs5.1bn not included
 
  • Chile operations were affected during the quarter as the shipments did not take place due to low water levels from November ‘11 onwards. Shipments during the quarter were 30% lower qoq against a 10.1% qoq decline in production. Management has indicated that the situation has stabilised in the month of February ’12. The company expects to achieve 1mn tons of iron ore production during FY13, while it is working to increase the iron ore capacity to 2.5mn tons by FY15. US plate mill capacity utilisation improved during the quarter due to stable demand environment and planned maintenance shutdown during Q3 FY12. The company is expecting strong performance from its US operations in FY13 on the back of demand revival in the plate and pipe segment. This quarter the company had received an insurance claim which led to a jump in its reported PAT.
  • 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. CWIP at the end of FY12 stood at Rs31bn. Net debt at the end of the year stood at Rs127.7bn, lower than Rs135bn at the end of Rs135bn.
  • JSW has run up YTD, outperforming most of its peers and the benchmark indices. The run up in stock has been led by an uptick in both demand as well as prices in Q4 FY12 and expectations of an early resolution of the Karnataka issue. We believe the run up in the stock is overdone and the market is discounting iron ore supplies to recover in the region. However, 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 value JSW at 6x FY13E EV/EBIDTA and arrive at 9-month price target of Rs702; maintaining our Market Performer rating on the stock.
Result table (Standalone)
(Rs m)
Q4 FY12
 Q3 FY12
% qoq
Q4 FY11
% yoy
Net sales
95,447
78,765
21.2
71,052
34.3
Material costs
(62,398)
(51,667)
20.8
(42,462)
47.0
Personnel costs
(1,528)
(1,502)
1.7
(1,367)
11.8
Power and fuel costs
(4,827)
(4,392)
9.9
(3,073)
57.0
Other overheads
(10,176)
(8,678)
17.3
(7,607)
33.8
Operating profit
16,518
12,526
31.9
16,543
(0.1)
OPM (%)
17.3
15.9
140 bps
23.3
(598) bps
Depreciation
(4,720)
(4,444)
6.2
(3,827)
23.3
Interest
(3,677)
(2,818)
30.5
(1,528)
140.6
Other income
483
8
6,259.2
38
-
PBT
8,604
5,271
63.2
11,226
(23.4)
Tax
(3,074)
1,412
(317.7)
(2,066)
48.8
Effective tax rate (%)
35.7
(26.8)
 
18.4
 
Adjusted PAT
5,530
6,684
(17.3)
BSE 251.00 [1.50] ([0.59]%)
NSE 250.85 [1.60] ([0.63]%)

***Note: This is a NSE Chart

 

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