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Revenue in line; lower-than-expected costs drive earnings beat

* JSW Steel (JSTL) posted consolidated revenue of INR397b (-11% YoY/-8% QoQ), in line with our estimate of INR414b in 2QFY25. Revenue was lower QoQ due to weak realizations. ASP stood at INR64,737/t (-8% YoY and -8% QoQ) in 2QFY25.

* EBITDA came in at INR54b (-31% YoY/-1% QoQ) vs. our estimate of INR45b due to lower-than-estimated costs. The decline in realizations was more than offset by lower input costs, leading to flat sequential EBITDA. EBITDA/t stood at INR8,869/t in 2QFY25, which was lower by 29% YoY and 2% QoQ (v/s our est. of INR7,324/t).

* JSTL’s APAT stood at INR6b (-80% YoY/-28% QoQ) v/s our estimate of INR5b. Weak operating performance and higher tax outgo hurt APAT. JSTL recognized an exceptional item of INR3.4b related to provision for surrendering the Jajang iron-ore mine.

* During 1HFY25, JSTL’s revenue declined 5% YoY, EBITDA dipped 27% YoY, and APAT declined 73% YoY.

* Combined crude steel production stood at 6.77mt (+7% YoY/+7% QoQ) due to improved production at Dolvi and BPSL facilities. The capacity utilization stood at 91% for Indian operations.

* Steel sales volume came in at 6.13mt (-3% YoY/flat QoQ) in 2QFY25. Sales from the institutional segment grew 12% YoY, while retail sales dipped 14% YoY due to higher imports at cheap prices.

* Net debt/equity stood at 1.04x at 2Q FY25 end (0.97x at end-1QFY25).

Highlights from the management commentary

* Coking coal costs declined USD27/t QoQ in 2QFY25. In 3QFY25, management expects the coking coal costs to further decline by USD20- 25/t sequentially.

* Steel prices are likely to be firm going forward, as demand is expected to improve post-monsoon. JSTL took price hikes in Oct’24 for both flat and long steel.

* The company revised its capex guidance to INR170b from INR200b, primarily due to the transfer of the slurry pipeline to JSW Infra.

* Iron ore costs for JSTL could increase in 3QFY25 due to the recent price hikes by NMDC. However, JSTL expects the share of captive iron ore to rise, especially from 4QFY25, as more of its iron ore mines become operational.

Valuation and view

* JSTL’s 2QFY25 performance has improved, as the reduction in realizations was more than offset by the decline in costs. We believe JSTL is well placed with new capacities coming on-stream, strong domestic demand, and a rising share of value-added proportion in the sales mix. Its focus on increasing the captive share of iron ore and improving coal linkages will support earnings.

* In 2HFY25, we expect revenue/EBITDA/APAT to grow 14%/24%/74% YoY driven by healthy volume, improving realization coupled with muted costs.

* At CMP, JSTL trades at 6.3x FY27E EV/EBITDA and we maintain our estimates for FY25/FY26/FY27. We reiterate our BUY rating on the stock with a TP of INR1,200 (premised on 8x EV/EBITDA on Sep’26).

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