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Higher input cost impacted margins; growth capex on track

JSW Steel reported 3Q consol. EBITDA of INR72bn, higher than JMfe of INR68bn. The beat was primarily driven by improved performance from foreign subsidiaries. Standalone EBITDA came in at INR58bn, implying an EBITDA/t of INR11.1k– down INR1.6k/t QoQ on account of higher iron ore and coking coal cost. BPSL reported an EBITDA of INR7.8bn vs INR7.5bn in 3Q while JSW coated reported an EBITDA of INR2.3bn vs INR4.1bn in 2Q. Net debt stood at INR792bn up ~INR100bn QoQ primarily on account of increased working capital requirements. Key takeaways from the call are a) coking coal cost is expected to increase by USD20-25/t in 4QFY24 b) consol. capex for FY24 to be ~INR180bn vs earlier guidance of INR200bn c) Realisations during 4Q to improve slightly tracking revival in exports, volumes to improve on back of seasonally strong quarter. JSW continues to aggressively add capacity across facilities – a) Vijaynagar expansion to be completed by FY24 end b) BPSL Phase-II expansion (from 3.5mtpa to 5mtpa) is expected to be completed by FY24. Strong growth pipeline and increased focus on cost efficiency augurs well for the company. Maintain BUY.

? Higher coking coal and iron ore cost impacted standalone margins: Sales for the quarter stood at 5.2mn tons, down 4% QoQ given higher imports coming into India. Realisations increased by ~1.7k/ton QoQ. EBITDA/ton came in at INR11.1k, in line with JMfe of INR11k. The EBITDA was lower sequentially due to lower volumes and higher coking coal and iron ore price, partially offset by higher realisation. Net profit stood at INR24bn vs INR27bn in 2Q.

? Foreign subsidiaries reported improved performance, Indian subsidiaries displayed muted show: JSW Coated reported an EBITDA of INR2.3bn in 3Q vs EBITDA of INR4.1bn in 2Q primarily driven by lower realisations. Ohio operations reported an EBITDA loss of USD6mn vs EBITDA loss of US$29mn in 2Q. US plate and pipe mill registered EBITDA of USD19mn vs USD26mn in 2Q. BPSL revenues came in at INR50bn (down 14% QoQ) with EBITDA at INR7.8bn vs EBITDA of INR7.5bn in 2Q. Volumes came in at 0.7mt vs 0.8mt in 2Q.

? Net Debt increases due to higher working capital requirement: Company reported a net debt of INR792bn up INR100bn QoQ on account of higher working capital requirement. The company incurred a capex of INR52bn during the quarter. The 5mtpa brownfield expansion at Vijaynagar is progressing well, with construction activites for all packages underway. The company expects Vijaynagar expansion to be completed by end FY24 with ramp up expected in FY25E. BPSL Phase-II expansion (from 3.5mtpa to 5mtpa) is expected to be completed by end FY24, rampup expected in FY25E. The company is expected to commission 0.12mtpa coated steel line in J&K by Q1FY25. Capex guidance for FY24 stands at INR180bn. Post FY25 – JSW plans to increase capacity to 50 mn tons through brownfield growth at Vijayanagar, Dolvi and BPSL.

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CIN Number : L67120MH1986PLC038784