Analyst Research Report Snapshot

Title:

MOSL: JSW STEEL - Strong operating performance - Upgrade to Buy

Price:

$69.00

Provider:

Motilal Oswal Securities Ltd.

Date:

28 May 2014

Pages:

8

Type:

AcrobatPDF

Companies referenced:

JSTL.NS

Available for Immediate Download
Summary:

JSW STEEL 4QFY14: Strong operating performance; Upgrade to Buy (JSTL IN, Mkt. Cap USD5.0b, CMP INR1228, TP INR1473, 20% Upside, Buy) Strong operating performance; Upgrade to Buy JSW Steel (JSTL)’s consolidated 4QFY14 adjusted PAT increased 9% QoQ to INR2.5b on stronger performance of standalone operations. Reported PAT increased 2% QoQ to INR4.6b. The losses after tax at overseas subsidiaries increased by INR1.5b QoQ to INR3.5b on higher provisioning. Strong performance of standalone: EBITDA increased 8% QoQ to INR25b (vs. est. of INR23.6b) due to higher realization and stable cost of production. EBITDA per ton increased 8% QoQ to INR8,052 on 4% higher average realization. New low cost projects announced: JSTL announced capex of INR40b for debottlenecking of capacities at Dolvi and Vijaynagar by 1.7mtpa and 2mtpa respectively. The projects will be completed by 1HFY16. Post expansion JSTL’s capacity will rise from 14.3mtpa to 18mtpa. The new capacities will come at very attractive specific capex of INR20,000/ ton. Revising EBITDA estimates 15-20% upwards We are upgrading EBITDA per ton estimates by 12-17% on stronger operating performance of 4QFY14 and expected further reduction in operating costs. We are raising volumes by 3% to 12.4m ton for FY15 on new guidance. New low cost projects have improved the volume growth visibility for JSW Steel. Over next 1 years, Karnataka government will put in place mechanism for auctioning of category “C” mines. JSTL will be key beneficiary of the auction. As a result, we expect JSTL to keep getting re-rated. We are raising target price to INR1473/share (upside of 20%) and upgrading the stock to BUY. Stock is trading at EV/EBITDA of 6.8xFY15.

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