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Marginal miss in EBITDA in 4Q; outlook remains bright

* JSP reported revenue of INR135b (-1.5% YoY/ +15% QoQ) in 4QFY24, which was above our est. of INR122b. ASP stood at INR67,099/t (flat YoY/ +4% QoQ) vs. our est. of INR62,821/t.

* EBITDA stood at INR24b (+12% YoY/-14% QoQ), below our est. of INR26b, due to higher cost. EBITDA/t came in at INR12,162/t (+12% YoY/-14% QoQ) vs. our est. of INR13,286/t. Coal costs rose USD10-20 per ton QoQ. APAT stood at INR9b (+52% YoY/-51% QoQ) vs. our est. of INR12.5b in 4QFY24.

* Production volume grew 2% YoY and 6% QoQ to 2.05mt (our est. 2.04mt). Sales volume was slightly above our est. at 2.01mt (-1% YoY/+11% QoQ). Exports share remained flat YoY at 11% of total revenue in Q4FY24.

* In FY24, revenue declined 5% YoY to INR500b, led by flat volume and weak realization. EBITDA/APAT increased by +3%/+62% YoY to INR102b/INR59b, because of RM cost moderation and an improved product mix in FY24. Sales volume was flat YoY at 7.7mt vs. our est. of 7.6mt in FY24.

* Net debt as of Mar’24 stood at INR112b vs. INR91b in 3QFY24, implying a net debt-to-EBITDA ratio of 1.1x as of Mar’24 vs. 0.92x in 3QFY24.

Expansion status and coal mine update

* During the quarter, JSP produced ~1mt from Gare Palma IV/6 coal mine and targets to reach a 3.5mt run rate in the near term.

* From Utkal C coal block, JSP produced ~0.9mt and plans to gradually ramp up the production. The Utkal B1 and B2 mines are under an advanced stage of clearance and expected to open in FY25E.

* JSP will increase its total finished steel capacity from 7.25mt to 13.75mt by FY26 at a total capex of INR310b.

* The management indicated that all the announced expansion are progressing as per schedule. JSP expects to incur the remaining ~INR150b capex (excluding maintenance capex) in the next three years.

Highlights from the management commentary

* Coal cost increased by ~USD10-20/t in 4QFY24 vs. USD281/t in 3QFY24 and USD249/t in 2QFY24.

* Coal cost is expected to moderate by USD30-40/t in 1QFY25 on consumption basis. The management expects to deliver better volumes in FY25 vs. FY24.

* JSP increased prices by INR1000/t in Apr’24.

* With a higher conversion of semis into VAP, JSP expects realization and profitability to improve ahead.

* The increase in inventory was largely due to higher raw material (coal) and finished goods inventory during the quarter.

Valuation and view

* While 4Q EBITDA was marginally lower than our estimate, the outlook remains bright. JSP increased prices in Apr’24 and coal costs are expected to be lower in 1QFY25. Capex would transition toward more value-added products, which would yield better profitability.

* We marginally increase our EBITDA estimates by 4%/3% for FY25/FY26. We maintain our BUY rating on JSP with a revised TP of INR1090, based on 6.5x FY26E EV/EBITDA. The stock is currently trading at 5.7x FY26E EV/EBTIDA and 1.6x FY26E P/B.

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