JSW Steel’s (JSTL) Q3FY23 Ebitda was in line with consensus estimates. The consolidated Ebitda surged 2.6x q-o-q at Rs 45.5bn owing to lower cost at standalone operations; performance of overseas subsidiaries, especially Italy, improved; net debt rose by Rs 35bn q-o-q mainly due to adverse forex movement. Going ahead, management expects the performance to improve further aided primarily by realisation, though cost is expected to stay range-bound. Besides, the performance of Indian subsidiaries is also expected to improve owing to lower inventory losses and better export prospects.
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Despite likely improvement in performance in coming quarters, we see JSTL being vulnerable to steel cycle more than its peers owing to higher leverage. On valuations, the stock is trading at an expensive 7.8x FY24E Ebitda. We retain SELL with an unchanged TP of Rs 550.
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Impressive Ebitda bounce: JSTL’s Q3FY23 consolidated Ebitda of Rs 45.5 bnwas in line with consensus estimates. The standalone Ebitda/t was up 2.4x q-o-q at Rs 8,141 mainly due to lower coking coal cost- down US$100/te q-o-q; blended realisation was down Rs 3,900/te owing to lower domestic and export realisation; proportion of exports was a mere 7%, while domestic was up 1.9% q-o-q; subdued performance of coated products and BPSL due to high dependence on exports and NRV-related impact; performance of overseas subsidiaries improved- contributing Rs 1.1bn to Ebitda. Going ahead, management expects performance to improve led by higher realisation aided by the recent uptick in global steel prices; coking coal cost likely to remain range-bound; and higher volume. Despite benefits from ramp up of value-added capacity, lower power cost and coke oven battery commissioning, we see JSTL more vulnerable to steel cycle compared to peers owing to its substantial ongoing capex commitment; higher debt compared to peers with netdebt Ebitda at 3.51x; and increasing iron ore prices might constrain profitability compared to integrated steel players. The mgmt has mentioned that all-efforts are being made to achieve the FY23E India sales volume guidance of 23.6mt and net debt will come off as forex effect recedes and working capital unwinds.