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JSW Steel rating – Buy: A stellar performance in quarter

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Smoke and steam rise from the JSW Metal Ltd. manufacturing facility in Dolvi, Maharashtra, India, on Thursday, Might 18, 2017. JSW, India’s greatest producer, reported a bounce in fourth-quarter revenue, boosted by file output, and mentioned it authorized plans to lift about $2.5 billion in debt. Photographer: Dhiraj Singh/Bloomberg

JSTL’s This fall EBITDA rose 42% q-o-q (+184% y-o-y), 13% above JEFe, led by better-than-expected realisations. Ebitda/t expanded 37% q-o-q to Rs 19.8K. Asian metal costs stay robust regardless of some latest correction; Indian spot HRC value is 20% above This fall common and nonetheless at a reduction to imports. We anticipate JSTL’s margins to rise additional in Jun-Q however think about a normalisation within the the rest of FY22. We increase FY22-23e EPS by 44-68% and retain Purchase with a revised PT of Rs 820.

Stellar This fall: JSTL’s This fall Ebitda and internet revenue rose 42-57% q-o-q (each ~3x y-o-y), 12-13% above JEFe. Standalone gross sales volumes rose 4% q-o-q whereas realisations improved Rs 8.4K/t q-o-q (+18%) led by increased metal costs.

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Uncooked materials prices had been up q-o-q as a consequence of increased iron ore costs; nevertheless, Ebitda/t nonetheless expanded 37% q-o-q to Rs 19.8K —a decade excessive. Mixed efficiency of subsidiaries additionally improved q-o-q. Internet debt went up a slight 2% q-o-q as a consequence of BPSL acquisition. In FY21, JSTL’s Ebitda grew 68% y-o-y whereas internet revenue was ~3x y-o-y.

Metal costs robust: China home metal costs are down ~15% from mid-Might peak however are nonetheless up 27% CYTD at $887/t. The continuing Covid wave is affecting Indian metal demand in close to time period however JSTL expects exports to make up for any shortfall.

Additional margin enlargement in Q1: JSTL’s iron ore price ought to rise additional in coming quarters on increased market costs and rising share of captive mines. Nonetheless, Indian HRC (flat) metal value has risen 20% from This fall common of Rs 55.5K/t to Rs 66.5K/t. Larger metal costs ought to greater than offset the enter price pressures for JSTL driving additional margin enlargement in Q1FY22. We assume a significant moderation in metal costs and margins in steadiness FY22 although. We think about HRC costs at Rs 57K/54K for FY22/FY23 — 14%/19% beneath spot. We estimate JSTL’s Ebitda/t at Rs 23.4K, Rs 18.1K and Rs 17.6K in Q1FY22, H2FY22 and FY23 respectively.

Subsequent section of progress capex: JSTL introduced an aggressive capex plan with whole spend of Rs 475 bn over the following three years. This contains 5mtpa enlargement at Vijaynagar at price of Rs 150 bn, implying a horny ~$400/t of capability. This, together with the already-announced 1mtpa enlargement at Vijaynagar, will take JSTL whole metal capability to 33mtpa by FY25.

We imagine the capex plans will be largely funded out of working money flows and these capacities will come at an opportune time when India would possible flip internet importer of metal.

Improve estimates; retain Purchase: The Board has authorized fund-raising of as much as Rs 190 bn. We improve FY22-23e Ebitda by 26-38% and EPS by 44-68%. We retain Purchase with Rs 820 PT, primarily based on 7.0x FY23e EV/Ebitda. We desire TATA over JSTL.

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