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Research
JSW Steel - In line performance - Phillip Capital
Posted On : 2014-02-23 19:40:01( TIMEZONE : IST )
JSW Steel reported strong performance during Q3FY14 with a marginal beat at operating level however higher tax impacted the net profits. The company is on the verge of commissioning / commissioned various projects (cost savings and value added products) in Q4FY14 which will significantly boost the profitability for FY15. With iron ore availability improving in Karnataka, the company is likely to see higher volumes and operational efficiencies. We retain our FY15 estimates and introduce our FY16 estimates with an EPS of Rs 164.7. We also roll forward our valuations to FY15 and hence revise our target price to Rs 1052. We retain our Neutral rating on the stock.
Q3FY14 results highlights
- Standalone sales revenues stood at Rs 117.3bn, 1.6% above estimates. Sales volumes for the quarter stood at 3.08mn tonnes, 0.3% below estimates. It is up 16.2% yoy (on comparable basis) and down 1.6% sequentially. Realisation for the quarter stood at Rs 38,089 per tonne, 1.9% above estimates. Higher value added products and exports with a benefit of higher exchange rates (hedged at Rs 64-65) helped the company report 5.4% sequential jump in realisations. Consolidated net revenues for the quarter stood at Rs 133.8bn, 6.4% below estimates. Marginally higher revenues in standalone business are more than offset by lower than expected revenues from subsidiaries.
- Standalone operating profit for the quarter stood at Rs 23.0bn, 1.6% above estimates. Higher revenues, lower power & fuel costs (benefit of 55MW power plant at Dolvi and lower coal costs) were partially offset by higher other expenses. Other expenses stood at Rs 15.4bn, 14.0% above estimates and up 26.5% sequentially. Hedging cost of around Rs 2bn in other expenses led to higher cost against our estimates. Standalone OP per tonne stood at Rs 6,721 (excluding other operating income), 1% below estimates. Consolidated operating profit stood at Rs 24.1bn, 1.3% above estimates.
- Consolidated Depreciation for the quarter stood at Rs 8.1, -2.0% against estimates. Interest expenses stood at Rs7.9bn, +1.8% against estimates.
- Consolidated net profit stood at Rs 4.6bn, 20.9% below estimates. Higher than expected tax rate for the quarter more than offset strong operating performance. Tax rate for the quarter stood at 45.1% against our estimates of 28.0%.
- The Company has maintained its guidance of 12mn tonnes and 11.55mn tonnes of crude steel production and saleable steel sales respectively in FY14. We believe the company will beat its FY14 guidance marginally going by the current production rates.
- The Company has accelerated its capex guidance for FY14 to Rs 55-60bn from Rs 40bn guided in Q2FY14. Higher spending during the current year is for the quick implementation of its existing projects. However, it has maintained its capex guidance of Rs 105bn over a period of FY14- FY16. The Company is expected to spend around Rs 40bn in FY15 while balance amount will be spent in FY16.
Valuations: At CMP of Rs 930, the stock trades at a P/E of 7.7x FY15E EPS of Rs 121.2 & 5.6x FY16E EPS of Rs 164.7. It trades at an Ev/Ebidta of 5.3x FY15E & 4.2x FY16E. We retain our Neutral rating on the stock with a target price of Rs 1052.
