JSW Steel (JSTL IN)

Rating: ACCUMULATE | CMP: Rs284 | TP: Rs300

May 26, 2019 Margins to remain low; downgrade to

Accumulate
Q4FY19 Result Update
JSW Steel (JSTL) reported Q4FY19 below our expectations due to lower than
☑ Change in Estimates | ☑ Target | ☑ Reco expected realisations largely impacted by poor product mix and high share
Change in Estimates
of exports offset by higher volumes and low fuel costs. Overall sales volume
Current Previous
rose 16.6% QoQ/1.7% YoY to 4.29mn (PLe:4.13mn) tonnes (t). Share of
FY20E FY21E FY20E FY21E exports rose to 22% in Q4 v/s 10%/15% in Q3FY19/Q4FY18.
Rating ACCUMULATE BUY
Target Price 300 364 Correction in domestic steel prices and sharp increase in global iron ore
Sales (Rs. m) 824,861 1,017,491 856,5031,047,384
% Chng. (3.7) (2.9)
prices (touched US$100/t) continue to remain a cause of concern for the steel
EBITDA (Rs. m)170,822 209,201 181,543 219,844 sector however, we believe that domestic demand is expected to remain firm
% Chng. (5.9) (4.8)
and oversupply situation in domestic iron ore industry will keep iron ore
EPS (Rs.) 22.1 25.0 24.5 27.3
% Chng. (9.6) (8.6) prices at low levels in FY20e. Management is confident to reduce cost
through commissioning of Conveyor belt, securing iron ore mines and by
Key Financials implying other cost reduction measures. Notwithstanding with the recent
correction in domestic steel prices, lower volume growth guidance (1.5% YoY
FY18 FY19 FY20E FY21E
Sales (Rs. bn) 689 848 825 1,017 in FY20e) and losses at recently acquired overseas entities will continue to
EBITDA (Rs. bn) 135 190 171 209 hurt earnings of JSTL for couple of quarters, we cut our EBITDA estimates by
Margin (%) 19.6 22.4 20.7 20.6
5.9/4.8 for FY20e/FY21e. We reduce our rating to Accumulate (earlier BUY)
PAT (Rs. bn) 45 76 67 75
EPS (Rs.) 15.0 25.4 22.1 25.0 with TP of Rs300 (earlier Rs364), EV/EBITDA of 5.7x FY21E
Gr. (%) 28.3 68.9 (12.9) 12.9
DPS (Rs.) 2.6 3.2 3.2 3.2  Weaker than expected realisations offset by higher volume growth and
Yield (%) 0.9 1.1 1.1 1.1 low energy cost: JSTL’s steel realisations fell 8% QoQ/Rs3,865/t to
RoE (%) 17.9 24.3 18.1 17.8
RoCE (%) 15.2 21.6 16.4 16.6
Rs44,900/t (PLe:Rs46,570) against our estimate of Rs2,200 drop. Led by lower
EV/Sales (x) 1.8 1.4 1.6 1.3 than expected energy cost, total cost/t fell 5.6%/Rs2,117 QoQ to Rs35,800
EV/EBITDA (x) 9.2 6.1 7.7 6.5 below our estimate of Rs37,420. Due to weaker than expected realisations,
PE (x) 18.9 11.2 12.8 11.4
EBITDA/t fell 16% QoQ (↑34% YoY) at Rs10,119 marginally below our
P/BV (x) 3.1 2.5 2.2 1.9
expectation of Rs10,200. EBITDA fell 2% QoQ to Rs434bn (PLe:421.2bn)

Key Data JSTL.BO | JSTL IN  Losses in overseas assets continue to diminish consolidated earnings:
52-W High / Low Rs.428 / Rs.257 Recently acquired operations in USA’s Acero/Italy’s Aferpi reported EBITDA
Sensex / Nifty 39,435 / 11,844
loss of USD27.8mn/USD3.4mn. Hence, Consolidated EBITDA arrived below
Market Cap Rs.686bn/ $ 9,854m
Shares Outstanding 2,417m our estimate at Rs44.4bn, down 1.4% QoQ (↓10% YoY). Impacted by higher
3M Avg. Daily Value Rs.4094.29m depreciation and interest cost on the acquired overseas assets, PAT fell 6.4%
QoQ/↓42% YoY to Rs15.2bn (PLe:Rs17.6bn).
Shareholding Pattern (%)
Promoter’s 42.55  Key highlights of Con-call: 1) Global prices dropped by US$10/t in past
Foreign 19.63 couple of weeks due to high iron ore prices 2) Pricing pressure extended from
Domestic Institution 2.59
Public & Others 34.59
Q3 to Q4; steel prices fell 9% QoQ/2% YoY in Q4FY19 3) Low prices would be
Promoter Pledge (Rs bn) 123.09 partly offset by lower iron ore cost and other cost optimization measures 4)
Change in product mix with better value added products will improve
Stock Performance (%) realisations 5) Crude steel Production/Sales volume guidance for FY20e at
1M 6M 12M 16.95m/16m tonnes (1.5%/1.5% YoY growth) 6) Coking coal prices rose 9%
Absolute (3.0) (11.3) (9.7) QoQ to US$205/t and expects to remain flat QoQ in Q1FY20e 7) Will transport
Relative (3.9) (21.3) (20.6)
11m t iron ore through Pipe conveyor commissioned at Vijaynagar plant in
FY20e 8) Announced additional capex of Rs57bn to be spent on downstream
Amit Khimesra expansion/cost saving/mining and sustenance capex; Will spend in Rs157bn
amitkhimesra@plindia.com | 91-22-66322244
capex in FY20e (spent Rs96.8bn in FY19) 9) Consolidated Net debt fell
marginally by 0.13% QoQ (+21% YoY) to Rs459.7bn 9) Recently acquired
Aferpi (Italy)/ACERO (USA) are ramping up and will be EBITDA positive by
Q3FY20e/end of FY20e

May 26, 2019 1

 JSW Steel

Q4FY19 Result Overview (Rs mn)

Y/e March (Rs mn) Q4FY19 Q4FY18 YoY gr. (%) Q3FY19 FY19 FY18 YoY gr. (%)
Net Sales 2,23,680 2,09,740 6.6 2,03,180 8,47,570 7,15,710 18.4
Raw Material 1,20,000 1,08,190 10.9 99,010 4,29,930 3,90,230 10.2
% of Net Sales 53.6 51.6 48.7 50.7 54.5
Purchase of traded goods 760 - 1,930 3,200 20
% of Net Sales 0.3 0.0 0.9 0.4 0.0
Staff Costs 7,010 4,710 48.8 6,670 24,890 18,430 35.1
% of Net Sales 3.1 2.2 3.3 2.9 2.6
Power & Fuel 16,440 15,150 8.5 19,050 70,530 56,970 23.8
% of Net Sales 7.3 7.2 9.4 8.3 8.0
Other Expenses 35,070 32,410 8.2 31,510 1,29,500 1,05,740 22.5
% of Net Sales 15.7 15.5 15.5 15.3 14.8
Total Expenditure 1,79,280 1,60,460 11.7 1,58,170 6,58,050 5,71,390 15.2
EBITDA 44,400 49,280 (9.9) 45,010 1,89,520 1,44,320 31.3
Margin (%) 19.8 23.5 22.2 22.4 20.2
Depreciation 10,840 8,650 25.3 10,780 40,410 33,870 19.3
Other income 530 450 17.8 370 2,040 1,670 22.2
EBIT 34,090 41,080 (17.0) 34,600 1,51,150 1,12,120 34.8
Interest 10,460 8,830 18.5 10,210 39,170 37,010 5.8
PBT 23,630 32,250 (26.7) 24,390 1,11,980 75,110 49.1
Extraordinary income/(expense) - 3,620 - - 980
PBT (After EO) 23,630 35,870 (34.1) 24,390 1,11,980 76,090 47.2
Tax 8,350 7,150 16.8 8,200 36,440 15,380 136.9
% PBT 35.3 19.9 33.6 32.5 20.2
Reported PAT 15,280 28,720 (46.8) 16,190 75,540 60,710 24.4
Minority interest (280) (1,170) NA (210) (1,150) (1,010) 13.9
Share of profit/(losses) in Associates (330) 70 (571.4) (160) (300) 420 (171.4)
Net Profit attributable to shareholders 15,230 29,960 (49.2) 16,240 76,390 62,140 22.9
Adjusted PAT 15,230 26,340 (42.2) 16,240 76,390 50,090 52.5
Source: Company, PL

Key Operating Metrics

Y/e March Q4FY19 Q4FY18 YoY gr. (%) Q3FY19 FY19 FY18 YoY gr. (%)
Crude steel production (000 tonnes) 4,170 4,310 (3.2) 4,230 16,690 16,270 2.6
Sales (000 Tonnes) 4,290 4,220 1.7 3,680 15,760 15,620 0.9
Realisation per tonne 44,904 45,844 (2.0) 48,769 47,442 41,598 14.0
EBITDA per tonne 10,119 11,097 (8.8) 12,060 11,677 8,567 36.3
Total cost per tonne 35,804 35,820 (0.0) 37,921 37,008 33,754 9.6
Source: Company, PL

May 26, 2019 2

 JSW Steel

Financials
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e Mar FY18 FY19 FY20E FY21E Y/e Mar FY18 FY19 FY20E FY21E

Net Revenues 689,470 847,570 824,861 1,017,491 Non-Current Assets

YoY gr. (%) 24.0 22.9 (2.7) 23.4
Cost of Goods Sold 390,250 433,130 448,009 562,880 Gross Block 681,100 768,140 772,600 1,119,600
Gross Profit 299,220 414,440 376,852 454,610 Tangibles 681,100 768,140 772,600 1,119,600
Margin (%) 43.4 48.9 45.7 44.7 Intangibles - - - -
Employee Cost 18,430 24,890 22,913 24,723
Other Expenses 88,660 129,500 112,737 133,431 Acc: Dep / Amortization 109,690 150,100 190,881 248,184
Tangibles 109,690 150,100 190,881 248,184
EBITDA 135,160 189,520 170,822 209,201 Intangibles - - - -
YoY gr. (%) 11.0 40.2 (9.9) 22.5
Margin (%) 19.6 22.4 20.7 20.6 Net fixed assets 571,410 618,040 581,719 871,416
Tangibles 571,410 618,040 581,719 871,416
Depreciation and Amortization 33,870 40,410 41,721 57,304 Intangibles - - - -

EBIT 101,290 149,110 129,101 151,897 Capital Work In Progress 71,270 118,890 230,670 30,210
Margin (%) 14.7 17.6 15.7 14.9 Goodwill 7,070 8,400 7,070 7,070
Non-Current Investments 18,280 25,440 19,480 20,680
Net Interest 37,010 39,170 37,230 46,927 Net Deferred tax assets (22,850) (37,770) (50,652) (66,802)
Other Income 1,670 2,040 1,942 2,183 Other Non-Current Assets 17,040 41,650 74,491 92,074

Profit Before Tax 63,310 111,980 93,814 107,153 Current Assets

Margin (%) 9.2 13.2 11.4 10.5 Investments 3,120 820 3,120 3,120
Inventories 125,940 145,480 146,264 181,620
Total Tax 15,380 36,440 29,072 33,776 Trade receivables 47,040 71,600 55,264 68,214
Effective tax rate (%) 24.3 32.5 31.0 31.5 Cash & Bank Balance 10,630 61,870 7,649 6,208
Other Current Assets 37,560 24,670 43,771 53,074
Profit after tax 47,930 75,540 64,741 73,378 Total Assets 920,180 1,149,140 1,182,318 1,347,505
Minority interest (1,010) (1,150) (1,050) (1,050)
Share Profit from Associate 420 (300) 1,000 1,000 Equity
Equity Share Capital 3,020 3,010 3,020 3,020
Adjusted PAT 45,366 76,390 66,791 75,428 Other Equity 276,960 344,940 387,960 451,751
YoY gr. (%) 28.8 68.4 (12.6) 12.9 Total Networth 279,980 347,950 390,980 454,771
Margin (%) 6.6 9.0 8.1 7.4
Extra Ord. Income / (Exp) (1,726) - - - Non-Current Liabilities
Long Term borrowings 393,930 359,890 473,930 513,930
Reported PAT 43,640 76,390 66,791 75,428 Provisions 1,380 2,580 1,380 1,380
YoY gr. (%) 23.9 75.0 (12.6) 12.9 Other non current liabilities 1,360 42,210 1,360 1,360
Margin (%) 6.3 9.0 8.1 7.4
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt - - - -
Total Comprehensive Income 43,640 76,390 66,791 75,428 Trade payables 159,440 161,590 184,564 228,093
Equity Shares O/s (m) 3,020 3,010 3,020 3,020 Other current liabilities 53,500 195,160 71,811 73,380
EPS (Rs) 15.0 25.4 22.1 25.0 Total Equity & Liabilities 920,180 1,149,140 1,182,318 1,347,505
Source: Company Data, PL Research Source: Company Data, PL Research

May 26, 2019 3

 JSW Steel

Cash Flow (Rs m) Key Financial Metrics

Y/e Mar FY18 FY19 FY20E FY21E Year
Y/e Mar FY18 FY19 FY20E FY21E

PBT 76,090 94,597 93,814 107,153 Per Share(Rs)

Add. Depreciation 33,870 39,470 41,721 57,304 EPS 15.0 25.4 22.1 25.0
Add. Interest 35,000 38,460 37,230 46,927 CEPS 26.2 38.8 35.9 44.0
Less Financial Other Income 1,670 2,040 1,942 2,183 BVPS 92.7 115.6 129.5 150.6
Add. Other 4,240 (1,433) (1,642) (1,883) FCF 25.5 5.1 (1.6) 5.0
Op. profit before WC changes 149,200 171,095 171,122 209,501 DPS 2.6 3.2 3.2 3.2
Net Changes-WC (11,010) (24,281) 3,652 (14,912) Return Ratio(%)
Direct tax (14,400) (30,976) (29,117) (32,809) RoCE 15.2 21.6 16.4 16.6
Net cash from Op. activities 123,790 115,839 145,657 161,780 ROIC 11.7 16.0 11.5 11.5
Capital expenditures (50,370) (100,540) (150,360) (146,540) RoE 17.9 24.3 18.1 17.8
Interest / Dividend Income 1,260 1,433 1,642 1,883 Balance Sheet
Others 3,820 - - - Net Debt : Equity (x) 1.4 0.9 1.2 1.1
Net Cash from Invt. activities (45,290) (99,107) (148,718) (144,657) Net Working Capital (Days) 7 24 8 8
Issue of share cap. / premium (270) - - - Valuation(x)
Debt changes (39,920) 30,000 50,000 40,000 PER 18.9 11.2 12.8 11.4
Dividend paid (6,550) (9,325) (11,636) (11,636) P/B 3.1 2.5 2.2 1.9
Interest paid (35,110) (38,460) (37,230) (46,927) P/CEPS 26.2 38.8 35.9 44.0
Others - - - - EV/EBITDA 9.2 6.1 7.7 6.5
Net cash from Fin. activities (81,850) (17,785) 1,134 (18,563) EV/Sales 1.8 1.4 1.6 1.3
Net change in cash (3,350) (1,054) (1,927) (1,441) Dividend Yield (%) 0.9 1.1 1.1 1.1
Free Cash Flow 77,030 15,299 (4,703) 15,240 Source: Company Data, PL Research
Source: Company Data, PL Research

Quarterly Financials (Rs m)

Key Operating Metrics
Y/e Mar Q1FY19 Q2FY19 Q3FY19 Q4FY19
Y/e Mar FY18 FY19 FY20E FY21E
Net Revenue 205,190 215,520 203,180 223,680
Crude Steel Prod. 16 16 17 21
YoY gr. (%) 36.0 25.0 11.2 6.6
Rolled Products Prod. 15 16 16 20
Raw Material Expenses 102,130 109,300 100,940 120,760
Sales Vol. (mt) 16 16 16 20
Gross Profit 103,060 106,220 102,240 102,920
Realisation / tonne (Rs) 40,831 47,870 45,528 45,998
Margin (%) 50.2 49.3 50.3 46.0
EBITDA / tonne (Rs) 8,796 10,361 9,694 9,734
EBITDA 51,050 49,060 45,010 44,400
Cost / tonne of iron ore (Rs) 3,300 3,487 3,700 3,700
YoY gr. (%) 3.6 (3.9) (8.3) (1.4)
Cost / tonne of coking coal (Rs) 12,991 15,241 15,261 15,699
Margin (%) 24.9 22.8 22.2 19.8
Source: Company Data, PL Research
Depreciation / Depletion 9,050 9,740 10,780 10,840
EBIT 42,000 39,320 34,230 33,560
Margin (%) 20.5 18.2 16.8 15.0
Net Interest 8,870 9,630 10,210 10,460
Other Income 580 560 370 530
Profit before Tax 33,710 30,250 24,390 23,630
Margin (%) 16.4 14.0 12.0 10.6
Total Tax 10,530 9,360 8,200 8,350
Effective tax rate (%) 31.2 30.9 33.6 35.3
Profit after Tax 23,180 20,890 16,190 15,280
Minority interest (270) (390) (210) (280)
Share Profit from Associates 210 (20) (160) (330)
Adjusted PAT 23,660 21,260 16,240 15,230
YoY gr. (%) 278.0 153.4 20.0 (30.5)
Margin (%) 11.5 9.9 8.0 6.8
Extra Ord. Income / (Exp) - - - -
Reported PAT 23,660 21,260 16,240 15,230
YoY gr. (%) 278.0 153.4 (7.4) (49.2)
Margin (%) 11.5 9.9 8.0 6.8
Other Comprehensive Income - - - -
Total Comprehensive Income 23,660 21,260 16,240 15,230
Avg. Shares O/s (m) 2,417 2,417 2,417 2,417
EPS (Rs) 9.8 8.8 6.7 6.3
Source: Company Data, PL Research

May 26, 2019 4

 JSW Steel

Price Chart Recommendation History

(Rs)
No. Date Rating TP (Rs.) Share Price (Rs.)
425
1 10-Jul-18 BUY 430 312

353 2 25-Jul-18 BUY 450 317

3 5-Oct-18 BUY 450 378
281
4 25-Oct-18 BUY 450 353
209 5 7-Jan-19 BUY 360 290
6 6-Feb-19 BUY 360 279
137
May - 16

May - 17

May - 18

May - 19
Nov - 16

Nov - 17

Nov - 18
7 5-Apr-19 BUY 364 294

Analyst Coverage Universe

Sr. No. CompanyName Rating TP (Rs) Share Price (Rs)
1 ACC BUY 1,735 1,662
2 Ambuja Cement Hold 205 221
3 Coal India Hold 265 235
4 Heidelberg Cement India BUY 214 182
5 Hindalco Industries Accumulate 224 195
6 Hindustan Zinc Hold 275 272
7 Jindal Steel & Power BUY 221 187
8 JK Lakshmi Cement Hold 320 357
9 JSW Steel BUY 364 294
10 NMDC Reduce 86 105
11 Shree Cement Hold 19,370 20,346
12 Steel Authority of India Hold 50 59
13 Tata Steel BUY 685 511
14 The Ramco Cements Hold 740 762
15 Ultratech Cement Accumulate 4,700 4,432

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

May 26, 2019 5

 JSW Steel

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