May 26, 2012 12:19 PM IST | Source:

JSW Steel an underperformer: Way2Wealth

Way2Wealth has recommended an underperformer rating on JSW Steel in its May 21, 2012 research report.

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Way2Wealth has recommended an underperformer rating on JSW Steel in its May 21, 2012 research report.

“JSW Steel reported 20% q-o-q growth in volumes at 2.3mn was able to operate its plant at 83% throughout quarter due to improved iron ore availability. Under challenging business environment has achieved 27% volume growth for the year FY12 at 7.8mnt. Realization for the quarter was stable at 8% y-o-y for FY12. Reduced coking coal contract prices has improved profitability for the quarter reporting EBITDA/t at Rs7151/t. F reported EBITDA/t of Rs7205/t. Iron ore price for the quarter stood at Rs3200/t. Interest cost for the quarter increased 30% q capitalization of 300MW power plant during the quarter. Interest cost is expected to remain at these levels for FY13E. US Subsidiary performance improved during the quarter posting PAT of around $28mn due to improved utilization at 44% insurance claim. Chile operations performance was below expectations due to reduce sale of iron ore.”

“JSW Ispat reported sales volume of 0.71mnt and EBITDA/t of Rs4252/t. High interest cost has impacted bottomline reporting loss of Rs141cr for the quarter. Standalone PAT is reported at Rs consolidated level it is reported at Rs769cr reported at Rs1625cr and at consolidated level it is reported at Consolidated PAT also includes one off item from US subsidiary insurance claim.  As against management guidance of 8.5mnt we worked out our projections based on 8mnt sales volume. We expect deteriorating macro environment and import threat from China to put pressure on realization in the medium term.”
‘We expect firm to post topline of Rs31200cr for FY13E and bottmline of Rs1516cr for FY13E. Thus, at current market price the stock is trading at 8.8x FY13E earnings and 5xFY13E EBIDTA. The stock is plagued by production bottlenecks, high debt, deteriorating demand outlook. Due to these factors the stock has under formed the markets. We maintain our “Underperform” rating on the stock,” says Way2Wealth research report.      

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