Result Update: JSW Steel Ltd - ACCUMULATE - TP Rs.355 - Kotak

JSTL's Q1FY19 numbers were above our estimates, driven by strong performance at standalone level and sharp improvement in US plate and pipe mills. The sales volume of value added products and special products increased by 6% YoY.

Key Highlights

- EBITDA/t in standalone operations increased further to Rs12,590/tonne in Q1FY19 from Rs11,950/tonne in 4QFY18, driven by 25.2%/6.1% YoY/QoQ increase in realisation and contribution from high margin products.

- The domestic sales grew 27% YoY, sales to automotive segment was up 57% YoY and retail sales during the quarter was up 25% YoY to 0.953MT. The steel volumes increased 9% YoY to 3.83MT (down 9% qoq), the long product volumes increased by 16%YoY to 0.87MT while flat volumes increased by 6% YoY to 2.73MT.

- The U.S plate and pipe mill registered higher utilisation and reported EBITDA of US$10.69 mn during the quarter.

Valuation & outlook

- Going ahead, we believe that, volume growth likely to remain in the range of 2-3% for the next 2 years and expansion will support the earnings from FY21. Besides volume, higher sales in the domestic markets, increase in value-added sales, ramp-up of captive iron-ore mines of 4.3MT, installation of pipe conveyor (operational by Oct'18) and operation of coke oven and pellet plant will aid earnings. At CMP, the stock trades at 6.8x and 6.6x FY19E and FY20E, EV/EBITDA. Though we expect strong performance to continue due to change in product mix, but due to weak global sentiment we recommend Accumulate, with a revised target price of Rs340 (earlier Rs355).

Shares of JSW STEEL LTD. was last trading in BSE at Rs.323 as compared to the previous close of Rs. 312.15. The total number of shares traded during the day was 289918 in over 7016 trades.

The stock hit an intraday high of Rs. 325.35 and intraday low of 314.25. The net turnover during the day was Rs. 92874092.

Source : Equity Bulls

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