Dear All,
Forwarding you the Result Update on JSW Steel for 4QFY2011 with an Accumulate recommendation and a Target Price of `1,024 (12 months).
JSW Steel‘s 4QFY2011 net sales and profitability came in significantly above our expectations. However, we expect profitability in 1HFY2012 to be lower on account of higher coking coal prices. Nevertheless, given its expansion plans and inexpensive valuations, we recommend Accumulate on the stock.
Strong performance: JSW Steel’s consolidated net revenue grew by 32.5% yoy to `7,209cr, aided by higher sales volume, better realisation and improved product mix. Sales volume grew by 14.0% yoy to 1.73mn tonnes. Average steel realisations increased by 19.4% yoy to `40,577 compared to SAIL, which managed to raise prices by mere 8.4% yoy during 4QFY2011. EBITDA margin dipped by only 127bp yoy to 23.1% as the company consumed its coking coal inventory priced at US$209-225/tonne. Standalone EBITDA/tonne grew by 10.6% yoy to US$211. US operations reported EBITDA of US$4.6mn in 4QFY2011 vs. US$2.3mn in 4QFY2010. Interest expense for 4QFY2011 fell by 12.9% yoy to `217cr due to debt prepayment. For 4QFY2011, JSW Steel has included share of profits from Ispat Industries.
Outlook and valuation: We expect strong sales volume growth for JSW Steel in the coming three years due to its aggressive brownfield expansion plans. We expect the company to reap benefits of economies of scale on account of large scale production, which should lower per unit cost of production. Also, the commissioning of the beneficiation plant in FY2012 is likely to lower iron ore cost for JSW Steel by US$25/tonne. At the CMP, the stock is trading at 5.9x FY2012E and 4.7x FY2013E EV/EBITDA. We recommend Accumulate on the stock with a target price of `1,024 (`1,125), valuing it at 5.0x FY2013E EV/EBITDA.
Kindly click on the following link to view the Report.
If you have any further queries, feel free to call us on 022 39357600, Extn: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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