JSW Steel Q3 Results Review

JSW Steel Ltd.’s Q3 FY24 cons. adjusted. Ebitda of Rs 71.8 billion (-9.6%/-9.0% YoY/QoQ) was 2.3% above our estimate majorly due to resilient performance at Indian operations and steady recovery at international operations. Cons. revenue of Rs 419.4bn (+7.2%/-5.9% YoY/QoQ) was 10.8% above our estimate.

Standalone India operations reported sales volume of 6.06mt, a change of plus 23%/-2% YoY/QoQ, partially offsetting the impact of lower steel realisations which came in at Rs 54,967/t (-12%/+1% YoY/QoQ). Standalone Ebitda Rs 57.7 billion (-7%/-16% YoY/QoQ) was 10% above our estimate.

Standalone raw material costs increased by 13%/18% YoY/QoQ due to higher coking coal and iron ore prices during the quarter. Power and fuel costs fell 14% YoY. Adjusted. international subsidiaries’ performance recovered due to improved market conditions and easing inflationary pressures in the U.S. and Europe, resulting in a 42% sequential growth in Ebitda.

JSW Steel is nearing completion of its capex plan of ~Rs 188 billion for FY24 primarily directed towards

1. bringing two coking coal and one thermal coal blocks on-stream,

2. capacity expansion by 5mt at Vijayanagar in Karnataka by end-FY24,

3. 1.5mt capacity expansion at Bhushan Power & Steel Ltd. in Odisha by end-FY24, and

4. maintenance capex. On-ground capex plans are estimated to take total crude steel production capacity to 37mt by FY25 while a subsequent capex plan to increase capacities to 50mt by 2030 is currently on the chalkboard.

We revise our FY24/FY25 Ebitda estimate lower by 13%/10% to factor in

1. a decline in steel prices,

2. rise in raw material costs, and

3. volume assumptions.

We introduce FY26 estimates and value JSW Steel at 6.5 times FY26E enterprise value/Ebitda, arriving at a revised target price of Rs 937/share (Rs 940/share earlier) accounting for increased net debt due to working capital build-up during the quarter.

The decline in Indian steel prices coupled with a rise in international prices has enabled import parity, a key positive likely to lead to better exports and improved international subsidiaries’ performance going forward. The rise in Chinese exports is a key risk.