JSW Steel - 4QFY2012 Result Update - Angel Broking

JSW Steel reported better-than-expected results for 4QFY2012 due to higher-than-expected sales volumes. We continue to maintain our Neutral recommendation on the stock.

Higher costs dent margins: JSW Steel's net sales grew by 35.3% yoy to Rs.9,511cr (above our estimate of Rs.8,406cr) on the back of a 33.3% increase in steel volumes and a 6.0% increase in realizations. However, the company's EBITDA margin slipped by 616bp yoy to 17.4% due to rising input costs. Interest expenses grew by 140.7% yoy to Rs.368cr. Hence, adjusted net profit decreased by 33.6% yoy to Rs.553cr (higher than our estimate of Rs.432cr). Reported PAT declined by 9.7% yoy to Rs.752cr during the quarter.

JSW Steel guides for 14.4% growth in production in FY2013: JSW Steel has guided for steel production of 8.5mn tonnes (+14.4% yoy) during FY2013, which indicates overall utilization levels of 76% for FY2013, in-line with our estimates.

Outlook and valuation: JSW Steel's production improved during 2HFY2012 on the back of increased availability of iron ore in Karnataka. However, we believe increasing steel production beyond current levels would remain a challenge until there is meaningful supply from Karnataka mines, once category A and B mines commence operations. Although we expect iron ore supplies to improve gradually during FY2013, there is lack of clarity on the timelines and anticipated production from Karnataka mines. Procedural delays in the commencement of operations from Karnataka mines could result in higher iron ore costs/lower utilization for JSW Steel. Hence, we maintain our Neutral view on the stock.

Source : Equity Bulls

Keywords