UBS Investment Research
JSW Steel
Q 2 better than expectations
Event: Volumes surprise on the upside, Operating expenses lower as well
JSW reported higher than expected Q2 PAT pre-ex of Rs4.9bn (-16%QoQ,
+9%YoY; UBS-e/consensus of Rs1.1bn/Rs2.5bn), and EBITDA of Rs12.9bn (-
7%QoQ, +39%YoY; UBS-e/consensus of Rs6.2bn/Rs10bn) driven by a) higher
volumes of 1.88 mt vs UBS-e of 1.56mt, while ASP was largely in line at
Rs40,516/t, b) lower than expected raw material cost of Rs26,250/t (+Rs1,532/t
QoQ) c) lower staff costs (lesser by Rs0.3bn over Q1FY12).
Impact: EBITDA/t higher than expected; Iron cost higher by Rs800/t QoQ
EBITDA/t was Rs6,850/t (-15%QoQ, +17%YoY) higher than UBS-e of Rs3,977/t
(UBS-e for FY12 is Rs5,364/t). Though the production was impacted by c450kt in
the quarter due to mining ban, sales were higher due to a) inventory liquidation
from Q1 b) re-rolling volumes of 0.18mt for JSW ISPAT. JSW incurred higher
iron ore cost of cRs800/t in the quarter due to increased purchases from the market.
Action: Stock price discounts the negatives, look beyond the current mess
The management has lowered FY12 sales guidance to 7.8mt vs 9mt earlier while
we forecast 6.9mt. 1H sales were 3.6mt. We believe a lot of the negative news is
already discounted by the current stock price. JSW is currently trading at attractive
valuations of FY13E EV/EBITDA / PB of 5x/0.7x. At an EV (FY12E) of
cUS$6bn, JSW is trading @40% discount to replacement value.
Valuation: Maintain Buy with a PT of Rs700
We value JSW on 6x FY13E EV/EBITDA. We don’t value investment in Ispat.
JSW Steel
Q 2 better than expectations
Event: Volumes surprise on the upside, Operating expenses lower as well
JSW reported higher than expected Q2 PAT pre-ex of Rs4.9bn (-16%QoQ,
+9%YoY; UBS-e/consensus of Rs1.1bn/Rs2.5bn), and EBITDA of Rs12.9bn (-
7%QoQ, +39%YoY; UBS-e/consensus of Rs6.2bn/Rs10bn) driven by a) higher
volumes of 1.88 mt vs UBS-e of 1.56mt, while ASP was largely in line at
Rs40,516/t, b) lower than expected raw material cost of Rs26,250/t (+Rs1,532/t
QoQ) c) lower staff costs (lesser by Rs0.3bn over Q1FY12).
Impact: EBITDA/t higher than expected; Iron cost higher by Rs800/t QoQ
EBITDA/t was Rs6,850/t (-15%QoQ, +17%YoY) higher than UBS-e of Rs3,977/t
(UBS-e for FY12 is Rs5,364/t). Though the production was impacted by c450kt in
the quarter due to mining ban, sales were higher due to a) inventory liquidation
from Q1 b) re-rolling volumes of 0.18mt for JSW ISPAT. JSW incurred higher
iron ore cost of cRs800/t in the quarter due to increased purchases from the market.
Action: Stock price discounts the negatives, look beyond the current mess
The management has lowered FY12 sales guidance to 7.8mt vs 9mt earlier while
we forecast 6.9mt. 1H sales were 3.6mt. We believe a lot of the negative news is
already discounted by the current stock price. JSW is currently trading at attractive
valuations of FY13E EV/EBITDA / PB of 5x/0.7x. At an EV (FY12E) of
cUS$6bn, JSW is trading @40% discount to replacement value.
Valuation: Maintain Buy with a PT of Rs700
We value JSW on 6x FY13E EV/EBITDA. We don’t value investment in Ispat.
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