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Operating performance in line; outlook bright

*  JSW Steel (JSTL) posted a consolidated revenue of INR463b (-2% YoY/ +10% QoQ; in line) in 4QFY24. ASP stood at INR68,750/t (-4% YoY/-2% QoQ) vs. our est. of INR67,507/t.

*  EBITDA came largely in-line with our est. at INR61b (-23% YoY/-15% QoQ). EBITDA/t was INR9,100 in 4QFY24, which declined INR3,058 YoY and INR2,867 QoQ. Management expects to reach a normalized EBITDA of INR12,000/t in the coming quarter.

*  APAT stood at INR13b (-65% YoY/-43% QoQ), which was 15% below our estimates of INR15b. This was due to higher tax outgo during the quarter.

*  Combined crude steel production was 6.79mt (+3% YoY/-1% QoQ), while steel sales came in at 6.73mt (+3% YoY/+12% QoQ) with capacity utilization of 93% at the Indian operations. JSTL India operations reported the highest ever VASP sales, up 5% YoY (~62% share of total sales).

*  During FY24, revenue grew 5% YoY to INR1,750b led by robust volume growth. EBITDA/APAT stood at INR282b/INR90b (+52%/+153% YoY). Consolidated crude steel production and sales volume stood at 26.4mt and 25mt, respectively.

*  Net debt as of Mar’24 declined INR53b to INR739b and likely to reduce further in the coming quarters with improving profitability. Net debt-toEBITDA stood at 2.62x, while ND/E ratio was 0.93x as of Mar’24.

*  Going forward, we expect JSTL’s domestic volumes to be robust with increasing capacities, a better product mix, and export opportunities. Moreover, with stable pricing, softened coal costs, and improving operational efficiencies, we expect its EBITDA/t to improve going forward. We raise our revenue/EBITDA estimates by 2%/5% for FY25 and 4%/7% for FY26. JSTL is trading at 6.1x FY26E EV/EBITDA. We upgrade JSTL to BUY from Neutral with a TP of INR1,070 (premised on 7x FY26E EV/EBITDA).

Highlights from the management commentary

*  Coking coal costs increased USD22/t during 4QFY24, which affected earnings. As coal prices have reduced in recent months, coal costs for 1QFY25 is likely to be lower by USD22-27/t.

*  Iron ore prices remained firm and were expected to remain stable in the near term. Steel prices are likely to remain range-bound going forward.

*  JSTL acquired a 92.19% stake in Minas de Revuboe Limitada (MDR) for a consideration of USD74m. It will provide JSTL with >800mt of premium HCC reserves in Mozambique.

*  JSTL incurred ~INR167b of capex in FY24. It expects to incur a capex of INR200b in FY25, funded largely through internal accruals.

*  The capacity expansion projects are on track, and management expects to reach a capacity of 50MTPA by FY31. 

Valuation and view

*  We believe JSTL is well placed with new capacities coming on-stream, strong domestic demand, improving exports, and a rising share of value-added proportion in the sales mix. Focus on increasing the captive share of iron ore, and improving coal linkages to support earnings.  The robust balance sheet and strong cash flow generation would allow for the execution of the planned fiveyear capex program.

*  JSTL is trading at 6.1x FY26E EV/EBITDA. We upgrade JSTL to BUY from Neutral with a TP of INR1,070 (premised on 7x FY26E EV/EBITDA).  

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