Sharekhan's research report on JSW Steel
Q4FY23 consolidated operating profit of Rs. 7,939 crore (up 75% q-o-q) was 10% above our estimate, led by strong earnings recovery across subsidiaries (EBITDA contribution of Rs. 1,692 crore), while standalone EBITDA was broadly in-line. Standalone business posted EBITDA growth of 27% q-o-q to Rs. 6,247 crore, led by 15%/11% q-o-q volume/margin improvement to 5.7mt and Rs. 10,998/tonne, respectively. BPSL’s EBITDA grew by 2.8x q-o-q, led by a strong 167% q-o-q margin recovery to Rs. 13,366/tonne; JSW Steel Coated Products posted EBITDA of Rs. 431 crore versus loss of Rs. 11 crore in Q3FY2023. Management’s steel sales volume guidance of 24mt implies 11% y-o-y volume growth for FY24 as the company expects robust domestic steel demand. Domestic steel price has seen some moderation, but steel spreads are to be sustained at the current level, given lower iron ore/coking coal price. Vijaynagar/BPSL phase-II expansion of 5mtpa/1.5mtpa is on track to get completed by FY2024.
Outlook
We maintain Reduce on JSW Steel with an unchanged PT of Rs. 620, as valuation of 7.9x/7.2x its FY2024E/ FY2025E EV/EBITDA seems rich when compared with historical average of 6.5x. We expect net debt to remain elevated given its capex plan.
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