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Result Synopsis

JSW Steel’s Q1FY24 performance was above the consensus estimates on the back of better realizations from a better and favorable product mix. JSW Steel’s realizations have done quite well where the general spot prices were declining. The value-added special products share increased to 61% of the total sales. In addition to that, exports also played a role in order to get better realizations than the domestic markets. On the cost front the company had to adjust to the higher cost inventory for coking coal as well as iron ore however with the fall in the raw material prices during the start of the quarter, we expect better margin realizations in the upcoming quarter. The EBITDA margins remained flat on a QoQ basis at 16.7% for Q1FY24. The company’s consolidated crude steel production stood at 6.43mt, up by 11% YoY and a 2% fall on a QoQ basis. The company’s consolidated steel sales came at 5.71mt, up by 27% on a YoY basis and registering a 13% fall on a QoQ basis. On the industry wide trends, there has been quite a lot of expectations that the growth would improve post the China reopening, however it hasn’t yet played out in the way the industry has been anticipating. On the other hand, the Indian story remains rigid, strong momentum continues with inflation moderating and improving demand. We believe that the Indian steel outlook is quite strong and the incremental demand on an annual basis is expected to be in the range of 11-12mt. With the global pricing stabilizing and with the lower raw material costs from the peaks of March-April, we expect the steel producers to be able to expand their margins from the previous quarters. We maintain a REDUCE rating with a revised price target of Rs 759/sh. We value JSW Steel at a 7xFY25E EV/EBITDA and have a conservative view because of the company’s reliance on sourcing majority of the key raw materials externally and the pricing volatility risk that the company faces.

Result Highlights

? Revenue for the quarter stood at Rs 422Bn (V/s our est of Rs 368Bn), reporting a decline of 10% QoQ & a growth of 11% YoY.

? EBITDA Margin came in at 16.7% (V/s our est of 13.3%) as compared to 11%/17% in Q1FY23/Q4FY23 respectively. Absolute EBITDA stood at Rs70.46Bn, growth of 64% YoY & degrowth of 11% QoQ.

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