Q3FY24 Review: JSW Steel: Healthy Q3

29 Jan 2024 , 01:17 PM

JSTL’s consolidated Q3 Ebitda of Rs71.8bn beat IIFLe, led by strong subsidiary performance. Standalone Ebitda/t was inline, on weak volumes. Rising RM costs would hurt Q4 Ebitda/t, although the parity to import prices means the steel price outlook is more stable. Capex on 6.5mtpa expansion projects is on track for FY24-end commissioning. Net debt rose by Rs100bn in Q3 to Rs792bn, on inventory accretion in Q3. Stronger Q4, in terms of volumes (domestic/exports), should help liquidate a large part of this. Analysts of IIFL Capital Services retain estimates. Upgrade to ADD with TP of Rs840. 

Subsidiaries drive beat in Q3FY24: 

ASW Steel’s Q3FY24 consolidated Ebitda at Rs71.8bn (down 9 % QoQ, up 58% YoY) was ahead of estimates; led by healthy performance of overseas subsidiaries and Rs1,830/t QoQ jump in Ebitda/t posted by BPSL. Standalone Ebitda at Rs57.8bn was in-line and translates into Ebitda/t of Rs11,113 (down 13% QoQ )on volumes of 5.2mt. Volumes fell 4% QoQ amid higher level of imports and low exports, since domestic prices were are at a premium to imports. 

Near-term pressures; but parity to imports a positive: 

Domestic HRC prices are now at a slight discount to imports — a positive. However, Q4 profitability would be under pressure from ~US$20-25/t increase expected for coking coal prices and rising iron ore prices, in line with elevated global prices. This should be partially offset by stronger volumes in Q4, aided by strong season domestically and restart of exports. Mgmt expects to liquidate meaningful inventory (built up in Q3) in Q4FY24. Overseas subsidiaries should sustain the healthy Q3 performance in Q4. 

Capex on track; debt rose on increase in WC: 

The 5mtpa and 1.5mtpa expansions at Vijaynagar and BPSL are on track for completion in Q4 and ramp up over FY25. Consolidated net debt rose by Rs100bn in Q3, led by ~Rs80bn rise in WC (inventory & lower acceptances) and Rs51bn of capex in Q3. Management expects to liquidate large part of WC in Q4 to ease the net debt to more comfortable levels by the end of FY24.