Aditya Birla Money is bullish JSW Steel and has recommended buy rating on the stock with a target of Rs 1247 in its February 2, 2011 research report.
?JSW Steel?s Q3FY11 results were below consensus expectations mainly on account of input cost pressure from higher iron ore prices QoQ while realisations stayed more or less same.?
?JSW Steel?s standalone net sales increased 25.9%YoY to 58.1bn on account of volume growth, better product mix (reduction in proportion of semis) and higher steel realisations. On a sequential basis, net sales increased marginally by 0.5% primarily on a 0.7% QoQ increase in sales volume of saleable steel to 1.59mn tonnes. Crude steel production grew 11% YoY and 4.1%QoQ to 1.64mn tones. JSW Steel?s standalone EBITDA declined 10.5% YoY to Rs 10bn on account of higher iron ore prices. Sequentially, EBITDA improved marginally by 0.8% on account of volume growth and improved product mix. EBITDA margins were down 700bps YoY to 17.2% on account of input cost pressure from higher raw material prices. Sequentially EBITDA margins remained flat.?
?JSW Steel?s standalone adjusted net profit was down 3.3% YoY to Rs 3.8bn on account of lower EBITDA while, sequentially, it was up14.9% on reduction in interest expenses from pre-payment of debt through proceeds from the stake sale to JFE Steel. Consolidated adjusted net profit was down 18.1% YoY to Rs 2.9bn. US operations continue to be a drag on JSW Steel?s consolidated numbers due to low capacity utilisation and higher interest costs. The US plate and pipe mill operated at a paltry capacity utilisation of 10% and 11% respectively.?
?JSW Steel has commenced iron ore mining operations in Chile in Nov 2010 and its first shipment is expected from Q1FY12. The management has guided for an output of 1mn tonnes each from its international raw material projects in Chile(iron ore) and US (coking coal) in FY12. The 3.2mn tonne expansion at Vijaynagar is on track for commissioning in March 2011. JSW Steel has announced a capex of Rs 40.3bn to set up a 2.3mn tonnes cold rolling mill (CRM) complex to increase its share of value-added products. Ispat?s operations at Dolvi have recommenced and is operating at close to rated Capacity.?
?For Q4FY11E, JSW Steel has ensured supply of coking coal at USD 225 per ton and is likely to benefit from further price increases in February after securing about a price rise of Rs 1000-1500 per ton in January 2011. Chinese HR steel prices have moved up ~USD40 per ton in the last month to about USD 735 per ton. In FY12E, JSW Steel would benefit from volume growth through the 3.2mn tonne expansion, increasing raw material integration from its international upstream acquisitions and higher captive power.?
?We retain our estimates for JSW Steel. JSW Steel is currently trading attractively at a consolidated P/E and EV/EBITDA of 7.9x and 4.4x FY13E respectively. We retain our target price per share for JSW Steel at Rs 1247, implying a potential return of ~38.7% from the last closing price. We reiterate BUY on JSW Steel,? says Aditya Birla Money research report.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management.Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
To read the full report click on the attachment
Powered By iWebRSS.com
