Result Update: JSW Steel Ltd - REDUCE - TP Rs.230 - Kotak

JSW Steel's (JSTL) 1QFY18, revenue and operating performance was in-line with expectations. Higher than expected depreciation and interest outgo led to lower PAT. JSTL reported profit of Rs6.24 bn down 43.7%/38.5% YoY/QoQ (estimates of Rs6.48 bn). The consolidated net sales for the quarter came at Rs146.99 bn, down 11.8% QoQ due to decline in sales volume and blended steel realisation. Lower realisation and increase in raw material costs led to 20%/17.3% YoY/QoQ decline in EBITDA to Rs26.17 bn (est. of Rs26.6bn), with an EBITDA margin of 17.8%. Blended steel realisation declined by ~Rs400/t sequentially. Steel price globally are improving with cost push from iron ore and coking coal amidst an improved demand environment in China. We expect steel prices in the domestic markets to remain firm, this coupled with lower coking coal costs (lag effect) in the coming quarter would help the company to report strong margin. We revised our FY18E estimates to Rs17.2 (earlier Rs15.9) and FY19E to Rs20.6 (earlier Rs19.9), incorporating annual report numbers. We believe that, JSTL is among the few players in India to benefit from the domestic steel industry's long term growth potential (backed by timely capacity expansion). At CMP, the stock is trading at 11.5x/9.3x FY18E/FY19E earnings and on EV/EBITDA, it trades at 7.3x/6.4x FY18E/FY19E EBITDA, which in our view is fairly valued. Hence, we recommend REDUCE (earlier ACCUMULATE), with a revised target price of Rs230 (earlier Rs215).

Shares of JSW STEEL LTD. was last trading in BSE at Rs.228.35 as compared to the previous close of Rs. 223.95. The total number of shares traded during the day was 398085 in over 4241 trades.

The stock hit an intraday high of Rs. 229.5 and intraday low of 222.2. The net turnover during the day was Rs. 90187044.

Source : Equity Bulls

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