JSW Steel - March 2013 Results Preview - Motilal Oswal

- Revenue to decline 11% YoY: We expect standalone net sales to decline 11% YoY (up 2% QoQ) to INR84.5b due to lower steel realization and volumes. Average steel realization would fall 6% YoY (up 2% QoQ) to INR38,9238/ton. Steel sales volume will decline 6% YoY (flat QoQ) due to iron ore availability constraint.

- EBITDA to increase 10% QoQ: We expect JSTL's EBITDA to increase 10% QoQ to INR14.5b on marginally higher realization and lower coking coal cost. We expect EBITDA/ton to increase 10% QoQ to USD123.

- Low cost iron ore benefit fades permanently in Karnataka; Maintain Sell: Lower caps on output from Karnataka mines coupled with increased costs such as FBT would result in higher iron ore prices for JSW. We believe that the benefit of low cost iron ore for steel mills in Karnataka has faded permanently. We also expect domestic steel market to remain challenging on increased supply and subdued steel demand. Many large players' capacity expansion projects are now close to completion, while there is a dearth of new projects and construction activities, thus leading to lower demand. In this scenario, we expect pressure on steel prices to continue, offering little hope for margin expansion for JSW. The stock trades at an expensive 9.3x FY15E EPS and an EV of 6x FY15E EBITDA. Maintain Sell.

Source : Equity Bulls

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