ChangeinEstimatesRatingTarget

Q3 FY15

JSW Steel Ltd.

JSWsstandaloneresultswasmarginallybelowourestimateduetohigher

thanexpecteddeclineinblendedrealisations
Consolidated numbers were impacted by weaker performance at US,

ChileandJSWCoated

Rating:
.Target:
CMP:

Upside:

BUY
Rs1,332
Rs977
36.4%

Weakdomesticdemandgrowthcoupledwithpressurefromimportsled

toa3.3%qoqdeclineinrealisations

Sector:

Metals & Mining

Sector view:

Neutral

Operatingprofitwasmarginallylowerduetocostsinvolvedinhedgingof

Sensex:

29,183

52Weekh/l(Rs):

ironoreimportsandpaymentsforoutsidejobwork
Imports accounted for 40% of total iron ore consumption in Q3 FY15,

companyexpects30%oftotaldemandtobemetbyimportsinFY15

1,365/805

Marketcap(Rscr):

23,623

6mAvgvol(000Nos):

596

Bloombergcode:

JSTLIN

Debtincreasedduetoincreaseinworkingcapitalrequirement

BSEcode:

500228

MaintainBuywithapricetargetofRs1,332.

NSEcode:

JSWSTEEL

Resulttable

PriceasonJan30,2015

(Rsmn)
Netsales
Materialcosts
Personnelcosts
Powerandfuelcosts
Otheroverheads
Operatingprofit
OPM(%)
Depreciation
Interest
Otherincome
PBT
Tax
Effectivetaxrate(%)
Otherprov/minorityetc
AdjustedPAT
Adj.PATmargin(%)
ReportedPAT
EPS(Rs)

Q3FY15
132,230
(72,862)
(3,911)
(10,030)
(22,469)
22,958
17.4
(8,900)
(9,366)
130
4,821
(1,753)
36.4
221
3,290
2.5
3,290
54.4

Q3FY14
136,228
(80,965)
(3,228)
(9,616)
(18,326)
24,094
17.7
(8,058)
(7,893)
144
8,287
(3,737)
45.1
93
4,643
3.4
4,643
76.8

FV(Rs):

%yoy
(2.9)
(10.0)
21.2
4.3
22.6
(4.7)
32bps
10.5
18.7
(10.0)
(41.8)
(53.1)

139.4
(29.1)
92bps
(29.1)
(29.1)

Q2FY15
138,948
(76,487)
(3,868)
(10,954)
(19,726)
27,912
20.1
(8,509)
(8,550)
265
11,118
(3,737)
33.6
107
7,488
5.4
7,488
123.9

%qoq
(4.8)
(4.7)
1.1
(8.4)
13.9
(17.8)
273bps
4.6
9.5
(50.9)
(56.6)
(53.1)

107.7
(56.1)
290bps
(56.1)
(56.1)

Source:Company,IndiaInfolineResearch

Blended realisations under pressure from cheap imports

JSWSteelstoplineinQ3FY15ofRs132.2bnwaslowerthanourestimatedue
to lower contribution from subsidiaries and lower steel prices. Most of the
subsidiariesreportedlowerthanexpectedrevenueasthecompanysawsome
inventory buildup in US and lower production at JSW Coated. For the
standalone entity the miss in topline was largely due to lower realisations,
whichwasunderpressureduetocheapimports.Realiationsareexpectedto
remain under pressure in Q4 FY15 as global prices have been in downward
trend and the rupee has appreciated in the last one month. Blended
realisationswerelowerby3.3%qoqafterdeclining2.2%qoqintheprevious
quarter. Standalone volumes at 3.03mn tons were inline with our estimate
and the company is on track to meet its guidance for FY15. JSW saw an
inventory accumulation of 0.135mn tons during the quarter as demand
remainedsubdued.

ThisreportispublishedbyIIFLIndiaPrivateClientsresearchdesk.IIFLhasotherbusinessunitswithindependentresearchteamsseparated
by'Chinesewalls'cateringtodifferentsetsofcustomershavingvaryingobjectives,riskprofiles,investmenthorizon,etc.Theviewsand
opinionsexpressedinthisdocumentmayattimesbecontraryintermsofrating,targetprices,estimatesandviewsonsectorsandmarkets.

10

Sharepricetrend
JSWSTEEL

Sensex

200
150
100
50
0
Feb14

Aug14

Jan15

Shareholdingpattern
Jun14

Sep14

Promoters

38.5

39.3

Dec14
39.6

Insti

24.6

24.1

23.9

Others

36.9

36.6

36.5

Research Analyst:
TarangBhanushali
research@indiainfoline.com
February02,2015

ResultUpdate

JSW Steel (Q3 FY15)

ImprovementinproductionfromCRMcomplexatVijaynagarledtoanincreaseinshareofVAPasa%ofsales
to25%inQ3FY14and33%inQ2FY15to35%inQ3FY15.Standalonesteelproductionwaslowerby0.6%yoy
and3.9%qoqat3.17mntons.UtilisationlevelsatDolvispelletandcokeovenhavebeenrisingonaqoqbasis.
Boththeunitswereoperatingat95%+utilizationslevelsduringthequarter.Domesticironoresituationhasnot
improvedduringthequarterandasaresultthecompanyconsumed40%ofitsironorefromimports.

2.5

100,000

15

80,000

10

60,000

40,000

20,000

(5)

0.5

(10)

0.0

1.5

Q3FY15

Q2FY15

1.0

Q1FY15

Q3FY15

Q2FY15

Q1FY15

Q4FY14

Q3FY14

Q2FY14

Q1FY14

Q4FY13

Q3FY13

2.0

Q4FY14

20

(mntons)

3.0

Q3FY14

(%)

(Rsmn)

3.5

Q2FY14

25

Q1FY14

120,000

qoqgrowth

Q4FY13

Revenue

140,000

Standalonesalesvolumetrend

Q3FY13

Standalonequarterlyrevenuetrend

Source:Company,IndiaInfolineResearch

Increase in other expenditure and lower realisations lead to lower than expected EBIDTA/ton

On the operating level, JSW Standalones result was marginally lower than our estimate due to higher other
expenditure and lower realisations. Other expenditure for the quarter was higher due to hedging cost for
importofironoreandincreaseinjobworkcharges.Theimpactoflowerrealisationswasoffsetbyamarginal
decline in raw material costs. Power costs per ton were also lower on a qoq basis due to lower coal costs.
EBIDTA/ton was marginally lower than our estimate at Rs6,988, 11.7% lower on a qoq basis. Next quarter
marginswouldbeunderpressureduetolowerblendedrealisations.Webelievetheimpactofthiswouldbe
offsetbysofteningironorepricesinthecountryandalsoglobally.LargeOdishaminershavecutironoreprices
sharply over the last one month and the company is evaluating of reducing imports and buying from Local
playersifpricesfurthercorrect.Thecompanyexpectsironoresituationtoimprovegoingaheadasitexpects
outputinKarnatakatorise20%andalsoexpectsauctionofCcategoryminestocommenceinQ4FY15.

Onaconsolidatedbasis,operatingprofitwaslowerduetohigheroperatinglossatChile,inventorypileupinUS
andlowerproductioninJSWCoated.Chilesubsidiarysoperatinglossincreasedduetoasharpdeclineiniron
orecosts.TheUSplateandpipemillisnotshowingsignsofimprovementandthecompanyhastakenalosson
its investments in the subsidiary. Subdued demand in the domestic market led to lower production at JSW
Coated and as a result the subsidiary reported a loss in bottomline. JSWs recently acquired Maxsteel plant
contributed ~Rs150mn to operating profit. Production at Ispat and Salav (Name changed from Maxsteel to
Salav)wasimpactedtodisruptioninAPMgassupply.Thecompanyhasmanagedtogetbackthesupplywith
thehelpofacourtorder.

JSW Steel (Q3 FY15)

Pertonanalysis(Standalone)
(Rsmn)
Steelproduction('000tons)
Steelsales('000tons)
Salesasa%ofproduction
Netrealisations
Costperton(Rs/ton)
Rawmaterial
Personnelcost
Powerandfuelcosts
Otheroverheads
Totalcost
EBIDTA/ton

Q3FY15
3,170
3,030
95.6
37,971

21,333
768
2,847
6,036
30,983
6,988

Q3FY14
3,190
3,080
96.6
38,846

22,864
643
2,701
4,993
31,201
7,645

%yoy
(0.6)
(1.6)

(2.3)

(6.7)
19.4
5.4
20.9
(0.7)
(8.6)

Q2FY15
3,300
3,070
93.0
39,262

%qoq
(3.9)
(1.3)

21,664
772
3,105
5,805
31,346
7,917

(1.5)
(0.5)
(8.3)
4.0
(1.2)
(11.7)

Q3FY14
85,774
19,409
92.8
(1.7)
(15.2)

%yoy
(25.6)
(6.7)
(14.0)
(73.4)
5.7

Q2FY15
86,084
16,641
94.5
2.5
(12.7)

%qoq
(25.9)
8.8
(15.5)

26.6

Q3FY14
243,171
231,000
27.3
5.2
2.8

%yoy
(10.1)
(3.0)
(48.0)

Q2FY15
224,387
221,025
18.2
(1.8)
(2.7)

%qoq
(2.6)
1.4
(22.1)

Q3FY14
0.41
0.42
24,450
793
125

%yoy
(12.2)
(11.9)
(7.2)
(18.0)

Q2FY15
0.41
0.41
25,371
1,080
109

%qoq
(12.2)
(9.8)
(10.5)
(39.8)

(3.3)

Source:Company,IndiaInfolineResearch

USpipeandplatemillperformance
(Rsmn)
Platesales(tons)
Pipessales(tons)
Revenue(US$mn)
Operatingprofit(US$mn)
PAT(US$mn)

Q3FY15
63,822
18,101
79.8
(0.5)
(16.1)

Source:Company,IndiaInfolineResearch

Chileironoreperformance
(Rsmn)
Platesales(tons)
Pipessales(tons)
Revenue(US$mn)
Operatingprofit(US$mn)
PAT(US$mn)

Q3FY15
218,515
224,123
14.2
(6.5)
(6.4)

Source:Company,IndiaInfolineResearch

JSWCoatedsteelperformance
(Rsmn)
Production(mntons)
Sales(mntons)
Revenue(Rsmn)
Operatingprofit(Rsmn)
PAT(Rsmn)

Q3FY15
0.36
0.37
22,700
650
(180)

Source:Company,IndiaInfolineResearch

Volume guidance maintained; upgrade to Accumulate

JSW Steel has corrected sharply over the last three months due to rising concerns over dumping of Chinese
steel,subdueddomesticdemandanddecreasingdomesticironoreproduction.Webelievethatthecorrection
inthestockisoverdoneandweexpectthescenariotoimproveinFY16.Thesharpcorrectioninglobalironore
priceshashelpedthecompanytoswitchtoimportedironoreoverdomesticpurchase.Landedcostofimported
iron ore at JSWs Dolvi and Salem plant is quite lower than the landed cost of iron ore from NMDC. The
depreciationoftherupeewouldreducethepressureofimportsfromChinaandUkraine.Webelievedomestic
demandwouldpickupfromFY16asrevivalinthedomesticeconomygainssteam,whichinturnwillleadtoan
increase in infrastructure spending. We expect JSWs bottomline to double over FY1417 on account of (1)
increased output from Dolvi (2) substitution of expensive domestic ore with cheaper imports (3) cost
rationalization exercise at Dolvi (4) superior product mix. Valuations at 4.8x FY16E EV/EBIDTA appear cheap
comparedtotheglobalsteelplayerstradingat5.7x.WemaintainourBUYrecowithapricetargetofRs1,332.

JSW Steel (Q3 FY15)

FinancialSummary
Y/e30Jun(Rsm)
Revenues
yoygrowth(%)
Operatingprofit
OPM(%)
PreexceptionalPAT
ReportedPAT
yoygrowth(%)

EPS(Rs)
P/E(x)
Price/Book(x)
EV/EBITDA(x)
Debt/Equity(x)
RoE(%)
RoCE(%)

FY14
512,196
34.0
91,655
17.9
21,647
4,519
62.5

89.6
10.9
1.1
6.4
1.7
11.2
12.0

FY15E
546,549
6.7
106,810
19.5
27,012
27,012
24.8

111.7
8.7
1.0
5.6
1.6
12.0
12.0

FY16E
581,726
6.4
121,208
20.8
34,928
34,928
29.3

144.5
6.8
0.9
4.8
1.3
13.8
13.5

FY17E
649,738
11.7
132,005
20.3
42,852
42,852
22.7

177.3
5.5
0.8
4.2
1.1
14.9
14.8

Source:Company,IndiaInfolineResearch

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