We expect JSTL to sail through these uncertain times due to Covid-19 given its ability to export higher volumes. We expect lower iron ore and coking coal prices in FY21 to partly offset decline in steel realisations.
JSW Steel’s Q4 result reflects the benefit of higher domestic steel prices. Derived realisation improved by 7% q-o-q to Rs 41,289/t, leading to a 45% q-o-q increase in Ebitda to Rs 8,703/t. Rev/Ebitda/Adj PAT declined 20%/33%/32% y-o-y to Rs 17,900 crore/Rs 3,000 crore/Rs 1,040 crore, respectively.
We expect lower coking coal and domestic iron ore prices to cushion the fall in margins due to lower steel prices in FY21E and expect margins to decline 10% y-o-y in FY21E. Our FY21E/FY22E estimates remain broadly unchanged. Maintain ‘buy’.
Consolidated Ebitda was down 33% y-o-y (+35% q-o-q) to Rs 2,970 crore (our estimate Rs 3,030 crore) on lower margins and consol. PBT (before exceptional item) was down 60% y-o-y to Rs 950 crore (estimate Rs 960 crore) due to lower margins. Standalone (S/A) volumes declined 14% y-o-y (-8% q-o-q) to 3.7 mt due to Covid-19.
Crude steel production declined 5% yo-y (-1% q-o-q) to 3.97 mt. The share of exports declined to 13% vs 24% in the previous quarter. Realisation improved 7% q-o-q (down 10% y-o-y) to Rs 41,289/t (estimate Rs 41,500/t) on strong domestic prices and lower exports. Ebitda/t improved 45% q-o-q (down 14% y-o-y) to Rs 8,703/t, led by higher realisation. Ebitda of arms came in at a loss of ~Rs 240 crore (vs Rs 220
crore in Q3FY20), due to lower profit in domestic subsidiaries. FY20 consolidated revenue/Ebitda/PAT
declined 14%/41%/71% y-o-y to Rs 72,600 crore/Rs 11,200 crore/Rs 2,200 crore, respectively, on lower margins.
Reported net debt stood at Rs 53,500 crore vs Rs 46,000 crore at FY19 end; net debt to Ebitda was at 4.5x.
Management highlighted that the current capacity utilisation is 85% and it expects to exit Q1FY21 at normal levels. We expect JSTL to sail through these uncertain times due to Covid-19 given its ability to export higher volumes. We expect lower iron ore and coking coal prices in FY21 to partly offset decline in steel realisations. Although JSTL’s net debt is expected to rise over FY20–22E, we expect net debt to peak in FY22 at Rs 65,400 crore (Rs 60,000 crore in FY20), with net debt to Ebitda of 3.7x. We
value JSTL at a 6.5x FY21E EV/Ebitda to arrive at a TP of Rs 199/share.