Q3FY23 Review: JSW Steel: Lower costs drive Q3; Q4 to be stronger

23 Jan 2023 , 11:47 AM

JSW Steel’s Q3 consolidated EBITDA of Rs45.5 billion benefitted from lower costs in SA (Q3 EBITDA/t of Rs8,141) and better profitability at subsidiaries. Rising Steel prices and higher share of exports at good prices, will aid Q4. However, costs are rising too and would reflect Q124 onwards. 

Higher leverage at Rs697 billion will see near-term reduction on inventory liquidation, though should largely remain stable over FY23-25, given committed capex that is running on track. Volume growth hence, should support absolute EBITDA. 

End Q3FY23 net debt at Rs695 billion (excluding US$2.4 billion acceptances) was up by Rs37.8 billion QoQ, led by increase in WC, capex and forex impact. Analysts at IIFL Capital Services expect some reduction in Q4 — but over FY23-25 — debt should be stable at ~RS670 billion amid the committed Rs488 billion capex. A further Rs90 billion capex for three new PLI-based projects, is needed and will be finalized soon.

Analysts at IIFL Capital Services have cut FY23 estimated EBITDA by 16%, but have maintained estimates for FY24-25. 

They have retained their Reduce recommendation on the stock.