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3Q result hit by weak volumes; new capex plans announced

* 3QFY25 revenue stood at INR118b (flat YoY/+5% QoQ), below our estimate of INR134b, due to lower-than-expected sales volumes. Sales volume came in at 1.9mt (+5% YoY/+3% QoQ) vs. our est. of 2.18mt. Production volume was at 1.99mt (+3% YoY/+1% QoQ). Owing to better long steel prices, ASP came in line at INR61,846/t (-4% YoY and +2% QoQ) during the quarter.

* EBITDA stood at INR22b (-23% YoY/flat QoQ) vs. our est. of INR27b, resulting in EBITDA/t of INR11,494/t (-27% YoY/-3% QoQ) vs. our est. of INR12,254/t. The QoQ per-ton decline was caused by cost escalation due to lower iron ore production from Tensa mine, which was partly offset by lower coking coal cost by USD39/t in 3Q.

* 3Q APAT stood at INR10b (-51% YoY/+10% QoQ) vs. our est. of INR11b.

* For 9MFY25, revenue was flat YoY at INR366b, whereas EBITDA declined by 7% YoY to INR72b and APAT fell 37% YoY to INR31b.

* Net debt increased to INR136b as on 3QFY25 vs. INR124b as of 2QFY25, leading to a net debt-to-EBITDA ratio of 1.4x (vs. 1.21x in 2QFY25), which management targets to keep below 1.5x.

* The company announced a new capex outlay of INR160b over the next three years aimed at efficiency improvement and cost reduction.

Highlights from the management commentary

* Coking coal costs declined by USD39/t in 3QFY25 and Management expects a further moderation of USD10/t in 4QFY25. Earnings are expected to be better in 4QFY25, driven by healthy volumes and lower costs.

* Management indicated that NSR will remain flat QoQ in 4QFY25. In 3Q, the sales spilt between Flat and Long was at 41% and 59%, respectively.

* In 3Q, the company’s iron ore cost increased by INR96/t and the company expects it to moderate by INR100-200/t in 4Q.

* Management guided that BFS-BOF is in the last leg of commissioning and will reach its optimum utilization level by FY26 end.

* The new capex is not for any major capacity enhancement but for costsaving initiatives.

Valuation and view

* JSPL’s 3Q performance was below our estimates due to weak volumes and subdued realizations. Earnings should improve ahead, aided by volume ramp-up and cost reductions.

* With the completion of its ongoing Angul expansion, JSPL’s crude steel capacity will increase by 65% to 15.9mtpa and finish steel capacity by 90% to 13.8mtpa, providing significant headroom for earning growth.

* The company has reduced its debt significantly, with a net debt-to-EBITDA ratio of 1.2x as of 3Q end. JSPL aims to keep the debt level in check ahead.

* We cut our EBITDA estimates by 6%/17%/10% for FY25/FY26/FY27 to factor in a weaker-than-expected volume growth outlook. We also await further clarity on the new capex plans to assess its specific implications on earnings. We maintain our BUY rating with a revised TP of INR960, based on 5.5x FY27E EV/EBITDA. The stock is currently trading at 5x on EV/EBITDA and 1.2x on P/B FY27 estimates.

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