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JSW Steel Ltd>
  • CMP : 908.7 Chg : -8.35 (-0.91%)
  • Target : 825.0 (11.34%)
  • Target Period : 12-18 Month

21 Jan 2023

Healthy operational performance…

About The Stock

JSW Steel is one of the leading integrated steel companies in India. It has a strategic collaboration with global leader JFE Steel of Japan, enabling JSW to access new and state-of-the art technologies to produce and offer high value special steel products to its customers.

  • JSW Steel’s manufacturing unit in Vijayanagar, Karnataka is the largest single location steel-producing facility in India with a capacity of 12 MTPA
  • JSW Steel is the only Indian steel company to be ranked among the top 15 global steel producers by World Steel Dynamics for 13 consecutive years

JSW Steel reported healthy operational performance for Q3FY23; wherein consolidated topline, EBITDA and PAT came in higher than our estimate.

  • JSW Steel standalone operations reported quarterly saleable steel sales volumes of 4.95 million tonnes (MT), up 24% YoY, higher than our estimate of 4.8 MT. Standalone operations reported EBITDA/tonne of ₹ 8141/tonne (our estimate of ₹ 7000/tonne). Standalone EBITDA/tonne came in higher than our estimate, primarily on the back of lower coking coal costs
  • For Q3FY23, JSW Steel reported consolidated topline of ₹ 39134 crore, up 3% YoY but down 6% QoQ (our estimate: ₹ 39120 crore)
  • Consolidated EBITDA for the quarter was at ₹ 4547 crore, up 160% QoQ, higher than our estimate of ₹ 3685 crore. Ensuing consolidated PAT for the quarter was at ₹ 474 crore, higher than our estimate of ₹ 353 crore
What should Investors do?

JSW Steel’s share price has given a return of ~96% over the last two years (from ~₹ 378 in January 2021 to ~₹ 741 in January 2023).

  • We maintain our HOLD rating on the stock. On the back of an improving operating environment, we upward revise our EV/EBITDA multiple to 7x (from 6.5x earlier)
Target Price and Valuation

We value JSW Steel at ₹ 825, 7x FY24E EV/EBITDA.

Key Triggers for future price performance
  • For Q4FY23, blended steel realisations are expected to be higher than Q3FY23 level while iron ore and coking coal costs are expected to remain range bound sequentially in Q4FY23 compared with Q3FY23
  • For JSW Steel standalone entity, going forward, we model EBITDA/tonne of ₹ 7500/tonne for FY23E and ₹ 13000/tonne for FY24E
Alternate Stock Idea

In our metal and mining coverage we like Midhani.

  • Midhani is a leading manufacturer of special steel, super alloys and titanium alloys catering to niche end-user segments like space, defence, etc
  • BUY rating with a target price of ₹ 285

Key Financial Summary

(| Crore) FY19 FY20 FY21 FY22 CAGR (FY17-22) FY23E FY24E CAGR (FY22-24E)
Net Sales 157,669.0 139,816.7 156,294.2 243,959.2 17.0 239,173.6 244,869.1 0.0
Reported EBITDA 29,383.3 17,463.1 30,504.3 63,490.0 30.0 33,644.3 37,990.7 -15.0
PAT 8,994.6 4,736.5 9,233.0 41,749.3
EPS (|) 7.9 4.1 7.7 34.3 - 7.9 12.3 -
EV/EBITDA (x) 7.2 13.3 7.1 3.1 - 6.2 5.2 -
RoCE (%) 13.8 4.8 13.1 28.5 - 11.5 13.1 -
RoE (%) 13.0 6.4 12.4 36.4 - 7.9 11.3 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key takeaways from conference call

  • For Q4FY23, blended steel realisations are expected to be higher than Q3FY23 level. Sequentially realisations are expected to trend higher in Q4FY23, in line with global steel prices
  • For Q3FY23, sequentially coking coal cost declined by ~US$100/tonne when compared with Q2FY23. Coking coal costs are expected to remain range bound in Q4FY23 when compared with Q3FY23. Similarly, iron ore costs are also expected to remain range bound in Q4FY23 when compared with Q3FY23
  • For FY23, the production and sales volume guidance remains unchanged for Indian operations viz. 23.6 million tonne (MT) (production) and 22.6 MT (sales), respectively. There could be some shortfall in the balance 1.4 MT guidance, which was for the US- Ohio operations and             JSW Ispat Special Products (JISPL) combined.
  • For Q3FY23, JSW Steel standalone operations crude steel production was at 5.32 MT, up 21% YoY and 7% QoQ, primarily due to better utilisation of Dolvi Phase – II. Sales of saleable steel at the standalone level were 4.95 MT for the quarter, up 24% YoY but marginally down 1% QoQ due to lower export volumes.
  • During the quarter, the combined crude steel production of JSW Steel was 6.24 MT, up 10% QoQ, mainly due to the ramp-up of 5 million tonnes per annum (MTPA) Dolvi Phase – II expansion, which achieved capacity utilisation of 85% compared to 80% in Q2FY23. Restarting of facilities at JSW Ispat Special Products (JISPL), after a maintenance shutdown that had commenced in Q2FY23, and ongoing ramp-up of Bhushan Power and Steel (BPSL) operations after expansion from 2.75 MTPA to 3.5 MTPA capacity, also contributed to higher production
  • JSW Steel’s capex spend was to the tune of | 4114 crore in Q3FY23 and
    | 10707 crore during 9MFY23 against the revised planned capex spend of
    | 15000 crore for FY23
  • The 5 MTPA brownfield expansion at Vijayanagar is progressing well, with civil works underway at the site. Long lead-time items have been ordered, and letters of credit established. Equipment erection has commenced for all packages. The project is expected to be completed by the end of FY24
  • The Phase – II expansion at BPSL from 3.5 MTPA to 5 MTPA remains on track for completion by FY24
  • The company’s consolidated net gearing (net debt to equity) was at 1.09x at the end of Q3FY23 (compared to 1.04x at the end of Q2FY23) while net debt to EBITDA was at 3.51x at the end of Q3FY23 (compared to 2.70x at the end of Q2FY23)
  • Net debt as of December 31, 2022 was at | 69498 crore, higher by | 3779 crore compared to September 30, 2022 due to higher working capital and forex impact. Going forward, the management expects net debt to trend lower due to favourable currency movement and reduction in inventory



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