Accumulate JSW Steel Ltd For Target Rs. 909 - Elara Capital
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Capacity ramp-up to drive earnings Broadly in-line revenue; EBITDA ahead of our expectations JSW Steel (JSTL IN) reported a mixed performance with broadly in-line net sales but better-than-expected EBITDA, led by lower-than-expected operating cost. Consolidated net sales grew ~7% YoY but fell ~6% QoQ to ~INR 413bn. EBITDA rose ~58% YoY but fell ~9% QoQ to ~INR 72bn. Adjusted PAT surged ~393% YoY and ~3% QoQ to ~INR 24bn. Guidance of 50mn tonne capacity by FY31 The completion of ongoing growth capex may increase steelmaking capacity to 37mn tonne by FY25. Thereafter, JSTL aims to reach 50mn tonne capacity by FY31. Management says this can be achieved through Brownfield expansion of ~5mn tonne each at Bhushan Power & Steel (BPSL), at Dolvi in Maharashtra and at the Vijayanagar plant in Karnataka. Further, it mulls setting up 1) a Greenfield electric arc furnace (EAF) plant at Kadapa in Andhra Pradesh, 2) Greenfield expansion of ~13mn tonne capacity in Odisha, and 3) a 4mn tonne green steel capacity in two phases. EBITDA per tonne up ~48% YoY but falls ~4% QoQ Consolidated sales volume grew ~7% YoY but fell ~5% QoQ to 6.0mn tonne. The QoQ decline was due to: 1) lower retail sales on channel destocking, 2) increased imports, and 3) lower exports at 9% vs 11% in Q2FY24. Q3FY24 capacity utilization for domestic operations was at 94% vs 89% in Q2. Realization was largely flat YoY and QoQ each at INR 68,895/tonne. Further, operating cost fell ~6% YoY and flat QoQ to INR 57,933/tonne, ~6% below our estimates. Thus, EBITDA/tonne improved ~48% YoY but fell ~4% QoQ to INR 11,967. Valuation: reiterate Accumulate with a higher TP of INR 909 While management says higher coking coal and iron ore prices are key near-term drags, better realization led by improved price-remunerative exports and healthy volume growth should partly offset the negative impact. Further, we believe JSTL is well placed to report healthy volume growth, driven by phase-wise completion of ongoing expansion projects. Thus, we reiterate Accumulate. We lower our EBITDA by ~2% each for FY24E & FY25E and by ~1% for FY26E. We roll over to December 2025E from September with a higher TP of INR 909 from INR 867 based on 7x December 2025E EV/EBITDA.
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