Q4FY23 Review: JSW Steel: Healthy Q4; capex to keep debt stable

22 May 2023 , 01:15 PM

For JSTL, healthy subsidiary performance drove higher-than estimated consolidated Q4 Ebitda at Rs79.4bn. At Rs62.5bn, SA Ebitda was in-line. Near-term outlook is weak amid pressure on NSR and higher coking coal costs. But sharp fall in coking coal prices provides a cushion beyond Q1. Debt was down QoQ; but fresh Rs125bn capex announcement on cost reduction projects and mining means that debt will remain stable at best. analysts of IIFL Capital Services retain estimates and the REDUCE rating.

Subsidiaries drive beat in Q4: 

JSW Steel reported in-line standalone Ebitda of Rs62.5bn – Rs11,000/t on volume of 5.68mt (up 11% YoY, 15% QOQ). Realisation jumped ~Rs3,000/t QoQ while costs were lower, led by US$6/t fall in coking coal prices. At Rs79.4bn, consolidated Ebitda beat IIFLe led by better profitability or BPSL (Rs13,366/t on 0.71mt), JSW Coated Products and US Plate & Pipe Mill (US%25.7mn Ebitda vs US$17.2mn QoQ). Ohio Ebitda loss narrowed from US$23mn in Q3 to US$12mn with volume being 2.2x QoQ.

Weaker outlook for Q1; coking coal price fall a positive: 

At US$548/t, Chinese steel prices are ~US$110 lower than the peak seen in Feb’23; but translate into similar spreads given lower coking coal and iron ore prices. Domestic prices have corrected, although we see further correction given the premium to import parity prices. Along with US$10- 15/t increase in coking coal price for Q1, Ebitda/t would fall QoQ in Q1FY24. Beyond Q1, the sharp US$100/t correction in coking coal prices would support profitability. Operating leverage on 2mt incremental volume guidance would also aid profitability.

Debt down by Rs101bn, large capex to limit reduction: 

Net debt fell by Rs101bn in Q4 to Rs593bn, aided by inventory liquidation. After spending Rs142bn in FY23, JSTL had a balance capex of Rs340bn over FY24-25. The company has announced incremental spending of Rs170bn (including Rs47bn sustenance capex) towards cost reduction projects, operationalisation of 2 recently won coking coal mines, and multiple iron ore mines in Odisha, Karnataka and Maharashtra. This would limit any further debt reduction over FY24-25.