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Sell JSW Steel: HDFC Securities
HDFC Securities has maintained its sell rating on JSW Steel. Net profit plummeted to Rs 3,175 million in Q2FY09 (-40.6% YoY) owing to 126% YoY increase in interest cost and Rs 2,684 million of foreign exchange loss due to translation of raw material liabilities and loans
HDFC Securities has maintained its sell rating on JSW Steel in in its November 4, 2008 research report. "Net sales grew by 58.5% YoY in Q2FY09 to Rs 42,692 million from Rs 26,942 million mainly driven by growth in realisations. Net profit plummeted to Rs 3,175 million in Q2FY09 (-40.6% YoY) owing to 126% YoY increase in interest cost and Rs 2,684 million of foreign exchange loss due to translation of raw material liabilities and loans. There will be increasing stress on margins for JSW Steel going forward due to lower steel prices and unchanged raw material prices, especially for coking coal where its yearly contract is set to expire in March 09."
"We are revising our FY09E and FY10E EPS by 38.0% and 38.4% downwards to Rs 62 and Rs 117 respectively, from Rs.100 and Rs.190 earlier due to weakening steel prices, delayed expansion plans and high leverage (expected net D/E ratio of 1.65x). At the CMP, JSW Steel is trading at 5.6x and 3.0x of FY09E and FY10E EPS respectively. We, therefore, maintain our SELL rating on the stock," says HDFC Securities' research report.
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