May 18, 2012, 12.01 PM | Source: Moneycontrol.com
Motilal Oswal is bearish on JSW Steel and has recommended sell rating on the stock with a target of Rs 526 in its May 15, 2012 research report.
Motilal Oswal (more)
“JSW Steel 4QFY12 adj. consolidated PAT declined 27% YoY to INR5.7b. This was a significant turnaround from loss of INR1.75b in 3QFY12 due to lower losses at JSW Ispat and stronger standalone performance. Reported PAT of INR7.7b included EO gains on insurance claims in US mills and EO gain of INR200.8m at JSW Ispat. Adj. standalone PAT declined 10% YoY to INR7.5b and turned around from loss of INR200m in 3QFY12. INR 1.99b EO item on account of Forex gain on deferred payment of raw material should be treated normal because revenue too is driven by currency movements. EBITDA per ton for JSW Steel and JSW Ispat were USD160 and USD66 respectively during the quarter. The margins improved due to lower raw material costs and introduction of pet coke in raw material mix.”
“JSW Steel is targeting for crude steel production to increase by 14% to 8.5m tons, contingent upon availability of iron ore from restart of Category 'A' and 'B' mines. We are cautious and concerned about quick restart of mines in Karnataka due to stringent and tardy court process. Therefore, we are factoring 7.8m tons in FY13. We expect EBITDA per ton for JSW Steel to improve from USD128 in FY12 to USD147 in FY13. We are upgrading FY13 EPS by 17% to INR45.2 largely due to factoring of lower loss from JSW Ispat. Stock is trading at rich FY13 PE of 13.7x and EV/EBIDA of 6.2x. We believe total iron ore availability in Karnataka will decline YoY in FY13 due to exhausting of inventories at closed mines and late restart of production. Despite operational difficulties, the CapEx program remains strong with a target of INR63b in FY13. We are concerned about significant leverage and uncertainty regarding sourcing of iron ore. Maintain Sell,” says Motilal Oswal research report.
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