JSW Steel Q1 Results Review - Earnings Below Estimates; Higher Volumes Likely To Drive Growth: Systematix

Systematix Research Report

JSW Steel Ltd.’s Q1 FY24 consolidated adjusted Ebitda of Rs 70.4 billion +29%/-11% YoY/QoQ was 4% below our estimate.

Standalone steel realisations at Rs 60,000 were -17%/-8% YoY/QoQ and 3.5% below our estimate. Sales volumes (standalone) at 5.5 million tonne (+26% YoY/-4% QoQ) were 8.3% below our estimate.

JSW Steel saw domestic offtake surge by 35% YoY but fell 14% QoQ to 4.65 mt; domestic sales contributed 85% to sales during the quarter, flat sequentially.

Raw material costs eased by 17% YoY due to a significant downfall seen in coking coal prices compared to corresponding period last year amid geopolitical disruptions.

Power and fuel costs have also fallen 18%/9% YoY/QoQ. Adjusted Ebitda/tonne at $108 (-11% YoY/-19% QoQ) was 2% above our estimate.

Subsidiaries reported improved performance, total Ebitda contribution by the subsidiaries was Rs 21.8 billion in Q1 FY24 (+63%/+29% YoY/QoQ). JSW Steel is on track to meet its committed capex of Rs 188 billion for FY24 which will primarily be directed towards-

1. bringing two coking coal and one thermal coal blocks on-stream,

2. capacity expansion by 5 mt at Vijayanagar in Karnataka by end-FY24,

3. 1.5 mt capacity expansion at BPSL in Odisha by end-FY24, and

4. Rs 47 billion of maintenance capex. It incurred Rs 40 billion capex in Q1 FY24.

We have revised our FY24E/FY25E consolidated Ebitda estimates lower by 3%/2% to arrive at a revised target price of Rs 918/share (Rs 956 earlier) based on six times FY25E enterprise value/Ebitda as we also factor in higher net debt of Rs 668 billion (Rs 594 billion as on March 2023).

JSW Steel’s steady capacity expansion coupled with several downstream value addition projects that would increase the share of new growth sectors such as defense and renewable power, and lead to better pricing, provide earnings visibility.

Global recessionary fears driven by high inflation, rate hikes, high Chinese exports etc., are key risks.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.