Q1FY24 Review: JSW Steel: Q1 a beat; capex to keep debt stable

24 Jul 2023 , 01:16 PM

JSW Steel’s Q1FY24 consolidated Ebitda of Rs70.5bn beat IIFLe led by better NSR (mix, exports), better coal blend and healthy volumes/profitability at overseas subs. Spot HRC prices and lagged effect of exports will hurt Q2 NSR but ~US$45/t fall in coking coal prices and higher volumes provides an offset. Net debt jumped by Rs74.5bn to Rs668bn on higher inventory. ND should remain stable with on track progress for Rs520bn expansion capex in India. Analysts of IIFL Capital Services retain estimates and REDUCE rating but raise TP to Rs766 (6.25x Sep-25 Ebitda for India).

Q1FY24 beat at both SA and overseas level: 

JSW Steel reported standalone Ebitda of Rs48.6bn (Ebitda/t of Rs9,860) on volumes of 4.93mt (down 13%QoQ, up 22% YoY). The beat vs IIFLe was driven by NSR increasing by Rs1,260/t vs ~Rs1,500/t decline in average Q1 HRC price. Better mix and higher export realisation (for older orders) helped NSR. Coking coal cost was up by US$11/t QoQ but impact was offset by better fuel blend. Ebitda/t still declined Rs1140/t due to higher iron ore costs and negative operating leverage. Overseas subs saw healthy volumes all across aiding profitability. Consolidated Ebitda stood at Rs70.5bn (down 11% QoQ).

NSR impact to flow in Q2; coking coal cost reduction to offset: 

Spot domestic HRC is down Rs2400/t vs Q1 average. Combined with the lagged impact of export NSR, Analysts of IIFL Capital Services expect NSR to fall sharply in Q2FY24. This however would be offset by ~US$45/t reduction in coking coal prices and positive operating leverage as volumes ramp up post planned shutdowns in Q1 and resumption of stocking assuming prices have bottomed out. Overseas subs should continue to post healthy volumes baring Ohio plate and pipe mill as per management. Overall mgmt. maintained guidance of 25mt sales for FY24.

Inventory accretion drove up debt QoQ; capex on track: 

Net debt increased by Rs74.5bn QoQ to Rs668bn (excluding acceptances) led by higher inventory levels amid channel destocking and capex of Rs40.9bn during Q1. Overall capex (Rs188bn in FY24, Rs520bn over FY24-26) remains on track to raise capacity to 34.7mt by FY24 and 37mt by FY25. This will result in net debt remaining stable at best over FY24-27. FY31 capacity is targeted to 50mt.