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JSW Steel reported 1Q consol. EBITDA of INR70.5bn, significantly higher than JMfe of INR49.3bn. The beat was primarily driven by higher than expected realisations and significantly improved subsidiary performance. Standalone EBITDA came in at INR48.6bn, implying an EBITDA/t of INR9.9k – down INR1.1k/t QoQ on account of lower scale of operations and higher RM cost. BPSL reported an EBITDA of INR7.0bn vs INR9.5bn in 4Q while JSW coated reported an EBITDA of INR3.9bn vs INR4.3bn. Net debt stood at INR668bn up ~INR75bn QoQ primarily on account of higher working capital. Key takeaways from the call are a) coking coal cost is expected to decrease by US$45-50/t in 2QFY24 b) realisation for 2QFY24 is expected to come lower sequentially c) margins for 2QFY23 are expected to remain range bound d) Post FY25 - capacity to increase from 37mn tons to 50 mn tons through brownfield growth at Vijayanagar, Dolvi and BPSL. JSW continues to aggressively add capacity across facilities – a) Vijaynagar expansion to be completed by FY24 end b) BPSL Phase-II expansion (from 3.5mtpa to 5mtpa) is expected to be completed by FY24. Strong growth pipeline and increased focus on cost efficiency augurs well for the company. Maintain BUY.

* Higher realisations aid standalone margins: Sales for the quarter was 4.9 million tonnes, down 13% QoQ given seasonally strong base. Realisations increased by ~1.1k/ton QoQ on account of higher export realisations. Exports during the quarter stood at ~15% of sales. EBITDA/ton came in at INR9.9k, above JMfe of INR7.8k. The EBITDA was lower QoQ primarily due to lower sales volumes and higher iron ore cost, partially offset by lower coal cost and power & fuel costs. Net profit stood at INR17.1bn vs INR28.4bn in 4Q.

* Subsidiaries report significantly improved performance: JSW Coated reported an EBITDA of INR3.8bn in 1Q vs EBITDA of INR4.3bn in 4Q. Ohio operations reported an EBITDA of US$2.6mn vs EBITDA loss of US$12.1mn in 4Q. US plate and pipe mill registered an EBITDA of US$45.0mn in 1Q. BPSL reported sequentially flat revenues (-2% QoQ) with EBITDA at INR7.0bn vs EBITDA of INR9.5bn in 4Q. The decline was primarily due to lower volumes partially offset by higher realisations.

* Subsidiaries report significantly improved performance: JSW Coated reported an EBITDA of INR3.8bn in 1Q vs EBITDA of INR4.3bn in 4Q. Ohio operations reported an EBITDA of US$2.6mn vs EBITDA loss of US$12.1mn in 4Q. US plate and pipe mill registered an EBITDA of US$45.0mn in 1Q. BPSL reported sequentially flat revenues (-2% QoQ) with EBITDA at INR7.0bn vs EBITDA of INR9.5bn in 4Q. The decline was primarily due to lower volumes partially offset by higher realisations.

* Net Debt increases due to higher working capital: Company reported a net debt of INR668bn up 12.6% QoQ on account of higher working capital. The company incurred a capex of INR41bn during the quarter. The 5mtpa brownfield expansion at Vijaynagar is progressing well, with civil works underway and long lead time items ordered. The company expects Vijaynagar expansion to be completed by end FY24. BPSL Phase-II expansion (from 3.5mtpa to 5mtpa) is expected to be completed by end FY24. The company commissioned colour coated steel line of 0.25mtp at Rajpura in May while 0.12mtpa steel line in J&K is expected to be completed by Q4FY24. Capex guidance for FY24/25 stands at INR188bn/185bn. Post FY25 – JSW plans to increase capacity to 50 mn tons through brownfield growth at Vijayanagar, Dolvi and BPSL.

* Merger with JSW Ispat Special products expected soon: Merger with JISPL is expected to pick pace as the company has received NCLT approval for the merger. The scheme would be effective upon filing of the certified copy of the order with ROC. Further, JSW Steel Coated Products Limited completed the acquisition of National Steel and Agro Industries Limited (NSAIL) by infusing INR6.2bn as per the approved resolution plan.

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