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Revenue in line; low volumes/high costs dent EBITDA

* JSW Steel (JSTL) posted consolidated revenue of INR429b (+2% YoY/-7% QoQ), in line with our estimate of INR442b. ASP for 1QFY25 stood at INR70,168/t (-5% YoY and +2% QoQ).

* EBITDA was INR55b (-22% YoY/-10% QoQ) vs. our estimate of INR63b. The sequential decline was largely due to lower volumes and certain one-offs, including inventory valuation impact.

* EBITDA/t stood at INR9,003 (-27% YoY/flat QoQ) vs. our est. of INR10,348.

* APAT stood at INR8b (-64% YoY/-35% QoQ) vs. our estimate of INR14b. Weak operating performance and high tax outgo hit APAT.

* Combined crude steel production stood at 6.35mt (-1% YoY/-6% QoQ). Capacity utilization at India operations was 87% and was hit by the planned maintenance shutdowns at Dolvi and BPSL. Steel sales volumes came in at 6.12mt (+7% YoY/-9% QoQ). Export volumes declined 29% YoY and were 10% of India operations in 1QFY25.

* During the quarter, JSTL approved the transfer of 30MTPA Slurry Pipeline undertaking in Odisha to JSW Infrastructure for INR17b.

* Going forward, we expect JSTL’s domestic volumes to improve with increasing capacities, a better product mix, and export opportunities. With stable pricing, softening coal and iron ore costs, and improving operational efficiencies, we expect its EBITDA/t to improve going forward. JSTL is trading at 6.2x FY26E EV/EBITDA. We cut our EBITDA estimates by 7%/3% for FY25/FY26. We reiterate our BUY rating with a revised TP of INR1,030 (valued at 7x EV/EBITDA on FY26E).

Highlights from the management commentary

* Production guidance is at 28.4mt and sales guidance is 27.0mt in FY25.

* Iron ore costs declined a bit sequentially. Further, coking coal costs dipped USD23/t QoQ during 1QFY25. These cost reductions were offset by inventory losses and certain one-off costs.

* For 2QFY25, management guided coal costs to dip further by USD22-28/t.

* Steel prices appear to have bottomed out. They are likely to remain rangebound in the near term.

* JSTL incurred a capex of INR44.7b in 1QFY25, and expects to incur a capex of INR200b in FY25.

* The sale of the Slurry Pipeline business has been executed to focus on steel expansion and better capital allocation.

* Elevated exports from China continue to remain a concern to India, due to the absence of any trade barrier.

Valuation and view

* While 1QFY25 has been challenging, the outlook remains positive. 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. The robust balance sheet and strong cash flow generation would allow for the execution of the planned five-year capex program.

* JSTL is trading at 6.2x FY26E EV/EBITDA. We reiterate our BUY rating with a revised TP of INR1,030 (valued at 7x EV/EBITDA on FY26E).

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