Buy JSW Steel; target of Rs 1,140: ICICI Securities

ICICI Securitie's research report on JSW Steel

JSTL’s Q1FY25 EBITDA of INR 55.1bn, declined 22% YoY/10% QoQ due to lower realisation and adverse operating leverage respectively. Key points: 1) Standalone sales volume rose 3.2% YoY to 5.09mt (I-Sec: 5.03mt) despite planned maintenance shutdowns. 2) Sales of Value-added and Special products (VASP) was 64% of overall, resulting in blended realisation rising INR 530/te QoQ. 3) Standalone EBITDA/te was up 7.6% QoQ at INR 8,399/te (ISec: INR 7,789) mainly due to lower coking coal cost – down USD 23/te QoQ. 4) BSPL performance was impressive with EBITDA/te at INR 8,933/te (up 30% QoQ) due to operational improvements. 4) Coated products’ performance was impacted by higher price of zinc/aluminium. 5) US subsidiaries' performance was impacted by sharp dip in prices; Italian subsidiary posted stable performance. Management retains both capex and volume guidance for FY25.

Outlook

JSW Steel’s (JSTL) Q1FY25 EBITDA of INR 55.1bn (down 22% YoY) was 10% ahead of our estimates. Key points: 1) Highest-ever Q1 domestic sales volume, though exports were down to 10% of overall. 2) Performance of Indian operations was better than our estimates. 3) Gross debt rose by INR 29bn QoQ, mainly due to scheduled repayment of acceptances and capex. 4) Board approved the sale of 30mtpa slurry pipeline to JSW Infrastructure for a consideration of INR 17bn. We believe that EBITDA is likely to rise aided by both volumes and improved spread. Despite high capex of INR 200bn in FY25, management expects net debt/EBITDA to come down to 2.5x by end-FY25. We retain BUY on JSTL with an unchanged TP of INR 1,140 (based on 7.4x FY26E EBITDA).