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Volumes to outrun cost headwinds

JSW Steel reported a strong operating performance in Q1FY27, supported by higher steel prices and improved profitability from JVML. Consolidated volumes (ex-BPSL) grew 4% YoY to 6.25mt, aided by higher exports (46% YoY to 0.68mt) and robust demand from the automotive, renewable energy and appliances segments. Average cons. NSR improved 17% QoQ to INR 75,782/t, supported by a 9% QoQ increase in HRC prices, improved product mix led by higher sales of value-added special products (VASP) from JVML and higher byproduct revenue. On the cost front, higher coking coal costs (US$17/t QoQ), along with increased iron ore and elevated operating costs (ME crisis impact of US$20/t), weighed on EBITDA during the quarter. These headwinds were partly offset by inventory drawdown which was used in the downstream business and processing at Anjar, resulting in consolidated EBITDA/t of INR 15,013, (PLe INR 13,632). Looking ahead, management indicated that coking coal costs are likely to increase further in Q2 by US$12-15/t, which would partly offset by stronger volumes, supported by the ramp-up of 4.5mtpa BF#3. Mgmt. maintained FY27 consolidated sales and production guidance of 28.6mt and 29.75mt, respectively, while reiterating domestic steel demand growth estimate of 7-9%.

Near-term earnings should benefit from improving volumes led by BF#3 and higher steel prices (rebar volume share at just 12%). Higher coking coal costs and softening Chinese HRC prices may keep domestic realizations at check over the next few months. We expect cost pressures to moderate from H2FY27 as coking coal and iron ore costs normalize, while improving profitability across subsidiaries and a higher share of valueadded products should support margins. Over the longer term, JSTL remains well positioned to outperform, supported by its strong brownfield expansion pipeline, increasing captive raw material security and sustained domestic steel demand growth. We raise our FY27/28E EBITDA by 2%/3.5% respectively on better profitability from JVML and expect 21% EBITDA CAGR over FY26-28E. At CMP, the stock is trading at 9.6x/8.3x EV of FY27/28E EBITDA. Maintain Accumulate with revised TP of INR1,351 (INR1,371 earlier) with same 8.5xFY28 EBITDA.

Robust quarter led by strong pricing and improved mix from JVML:

Consolidated revenue grew 10% YoY to INR 474bn (-7% QoQ; PLe INR 477bn) on higher steel pricing. Volumes grew 6% YoY (ex-BPSL) to 6.25mt on strong exports and higher domestic volumes from Autos, Appliances & RE sectors. Average cons realization was up 17% QoQ to INR 75,782/t (Ple INR 75,460/t) as average HRC was (+9%) during the quarter. JVML (JSW Vijayanagar) EBITDA grew 190% YoY to Rs18.2bn; while EBITDA/t improved 101% YoY to INR15,974/t on higher volumes post ramp up and better realization. JVML volumes grew 44% YoY to 1.14mt (-7% QoQ).

Higher NSR drives EBITDA: Consolidated EBITDA grew 18% YoY to INR 93.8bn (-3% QoQ; PLe INR 86.2bn) supported by lower other expenses and improved profitability across JVML, coated products and Ohio, driven by higher steel prices. Cons EBITDA/t increased 27% YoY to INR 15,013/t (+23% QoQ, PLe INR 13,632/t), as higher NSR more than offset elevated coking coal and other input costs. Standalone EBITDA grew 11% YoY to INR 66bn (+18% QoQ) lower than PLe of INR 77.2bn. Cons RM cost/t increased 27% YoY to INR 39,338 mainly on account of higher iron ore and coking coal costs; P&F cost/t too was up 7% YoY to INR 6,586. Mining premium increased 6% YoY to INR 2,936/t. Other expenses were up 4% YoY to INR 10,574/t.

Overseas operations return to growth:

US subsidiary (Ohio) returned to profitability, reporting EBITDA of US$ 4.8mn following the completion of the vacuum tank degasser project. Italy EBITDA grew 67% QoQ to EUR 7.05mn, with EBITDA/t improving to EUR 88, driven by higher sales volumes and better realizations. Coated Products EBITDA/t increased 24% YoY (+5% QoQ) to INR 6,288, supported by higher sales realizations. JVML continued its strong performance, with EBITDA surging 190% YoY to INR 18.2bn, while EBITDA/t more than doubled (+101% YoY) to INR 15,974/t, aided by higher volumes following the ramp-up and improved realizations. JVML volumes increased 44% YoY to 1.14mt (-7% QoQ)

Long-term growth strategy:

JSTL reiterated its long-term growth strategy, highlighting multiple brownfield and greenfield expansion opportunities. These include a 10mt expansion potential at Utkal, a brownfield green steel project at Salav, EAF expansion at Kadapa, and additional expansion opportunities at Keonjhar, Odisha and Gadchiroli Maharashtra. JSTL also has the potential to grow through its JVs, with 10.5mt of expansion capacity under JSW JFE Steel and a 6mt greenfield project under the POSCO JV, providing strong visibility on its longterm capex ambitions.

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