Sharekhan's research report on JSW Steel
Q3FY23 consolidated reported EBITDA witnessed recovery with an increase of 2.6x to Rs. 4,547 crore, but was below our estimates due to miss in standalone profitability, lower-than-expected EBITDA contribution from subsidiaries, several one-offs totaling to Rs. 984 crore. Standalone reported EBITDA margin improved to Rs. 8,141/tonne as compared to Rs. 3,477/tonne, led by 14% q-o-q decline in overall cost partially offset by 5% lower NSR. Adjusting for one-offs, standalone EBITDA was at Rs. 9,900/tonne. JSW Steel Coated and the Ohio US operation reported operating loss of Rs. 11 crore/$23 million due to lower realisation and inventory loss while BPSL/Italy operation posted positive EBITDA of Rs. 341 crore/Euro 17 million. The management lowered FY23 production/sales volume guidance to 23.6/22.6 million tonnes (versus from 25/24 million tonnes earlier) due to disruptions in JSW Ispat and the Ohio plant. The benefit of improvement in international HRC prices is expected to be visible in Q4FY23 as coking coal prices are likely to remain stable q-o-q.
We maintain our Reduce rating on JSW Steel with an unchanged PT of Rs. 620 as valuation of 8.5x FY24E EV/EBITDA seems rich when compared to historical average of 6.5x and we expect net debt (stood at Rs. 69,498 crore as on Dec’2022) to remain elevated given capex plan.