JSW Steel - 1QFY2013 Result Update - Angel Broking

JSW Steel reported better-than-expected standalone results for 1QFY2013. However, its consolidated results were below our expectations. We recommend Neutral rating on the stock.

Top-line increases led by volume growth: JSW Steel's standalone net sales grew by 27.8% yoy to Rs.9,030cr (below our estimate of Rs.9,438cr). Net sales growth was driven by higher steel volumes (+23.0% yoy to 2.1mn tonnes); However, its realizations remained flat yoy at Rs.42,900/tonne.

Operating profit up on higher sales: The company's standalone cost of production increased by 2.5% yoy to Rs.33,948/tonne. Hence EBITDA margins fell by 10bp yoy to 19.6%. Nevertheless, EBITDA grew by 27.2% yoy Rs.1,773cr led by increase in net sales. Adjusted net profit (excluding exceptional items) increased by 48.9% yoy to Rs.861cr (higher than our estimate of Rs.642cr).

Outlook and valuation: Steel prices have declined by 10-15% globally over the past three months mainly due to escalating debt crisis in Eurozone. However, domestic steel prices have remained flat due to INR depreciation against the USD. Further, Indian steel players continue to face threat of higher steel imports from FTA countries (FTA country players attract lower import duty). JSW Steel aims to raise utilization levels at its Vijaynagar plant during 2HY2013. However, we believe increasing steel production beyond current levels would remain a challenge in the near-term. Although we expect iron ore supplies in Karnataka to improve gradually during FY2013, there is lack of clarity on the timelines and anticipated production from Karnataka mines. Hence, we maintain our Neutral view on the stock.

Source : Equity Bulls

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