Hold JSW Steel; target of Rs 210: ICICI Direct

ICICI Direct's research report on JSW Steel

JSW Steel reported a mixed performance for Q1FY21. Topline came in lower than our estimate while consolidated EBITDA, EBITDA margin came in higher than our estimate. Consolidated operating topline came in at Rs 11782 crore (down 41% YoY, 34% QoQ), lower than our estimate of Rs 12351 crore. Standalone EBITDA was at Rs 1429 crore (our estimate of Rs 1442 crore) while consolidated EBITDA came in at Rs 1341 crore. Consolidated EBITDA margin was at 11.4%, higher than our estimate of 10.2%. Better-than-expected performance from Indian subsidiaries aided JSW Steel’s consolidated performance. However overseas operations continued to incur EBITDA losses. With respect to the consolidated operations, for Q1FY21, other expenses/tonne fell by ~Rs 2300/tonne QoQ to Rs 8022/tonne, aiding a reduction in overall operating costs sequentially. On a consolidated basis, JSW Steel reported finance cost and depreciation expense of Rs 1016 crore and Rs 1047 crore, respectively, while other income was at Rs 132 crore. Hence, consolidated net loss for the quarter was at Rs 582 crore.

Outlook

JSW Steel’s blended realisations declined ~12% QoQ (by ~Rs 4800/tonne). This resulted in a subdued EBITDA/tonne in Q1FY21 for standalone operations. We expect EBITDA/tonne to inch upwards (from Q1FY21 levels) on account of the recent uptick in steel prices, fall in coking prices (coking coal prices to decline by ~US$20-25/tonne in Q2FY21 compared to Q1FY21) and with overall improvement in sales volume (with higher proportion of domestic sales). We value the stock on an SoTP basis, thereby arriving at a target price of Rs 210. We maintain our HOLD rating on the stock.

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