Sharekhan's research report on JSW Steel
Q1FY24 consolidated PAT of Rs. 2,428 crore was significantly above our estimate of Rs. 714 crore led by a beat in standalone margins, strong performance from overseas subsidiaries, higher other income and lower depreciation/interest costs. Standalone EBITDA of Rs. 4,861 crore (down 22% q-o-q) surprised positively with 25% beat in EBITDA margin at Rs. 9,860/tonne (down 10% q-o-q). Although standalone steel sales volume of 4.93 mt was marginally above our estimate but was affected by inventory destocking and cyclone in west coast of India. US subsidiaries posted robust earnings supported by higher volumes. FY24 standalone steel sales volume guidance maintained at 24 mt (implies 11% y-o-y growth). For Q2FY24, management expects benefit of lower coking coal price by $45-50/tonne to offset the impact of lower steel realisation while volume growth to be healthy driven inventory liquidation. Plan to take steel manufacturing capacity to 37 mt/50 mt by FY25E/FY31E.
Outlook
Valuation of 7.8x FY25E EV/EBITDA seem rich to us and is factoring in expectation of margin/volume recovery in H2FY24. We do not find comfort at current valuation given premium to historical average EV/EBITDA of 6.6x and debt to remain elevated given capex plan. Hence, we maintain our Reduce rating on JSW Steel with a revised PT of Rs. 700.
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