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Steady performance shows the Indian steel story to be a solid pillar, maintain NEUTRAL

Result Synopsis

JSW Steel’s Q3FY24 performance was above the consensus estimates on the margin front on the back of a better product mix and focus on downstream steel sales. The company reported a higher-than-expected EBITDA margin despite the higher coking coal and iron ore prices coming into play. The company saw a 6% fall on its top line as realizations per tonne saw a fall of ~Rs 400/t. The share of value-added products remained near the 60% mark showcasing the companies focus on the downstream applications as well as helping it limit the impact of downfall of the steel prices. On the cost front, the company saw a rise in the coking coal prices by $21/t and iron ore prices have been on an upswing as well over the last couple of months. The EBITDA margins felt the impact of this and came in at 17.1% (vs 17.7% in Q2FY24).

The company’s consolidated crude steel production stood at 6.87 mt, up by 12% YoY and 8% rise on a QoQ basis. The company’s consolidated steel sales stood at 6.00 mt, up by 7% on a YoY basis and a fall of 5% on a QoQ basis.

On the industry wide trends, there has been quite a lot of expectations that the growth would improve post the China reopening, however it hasn’t yet played out in the way the industry had been anticipating. On the other hand, the Indian story remains rigid, strong momentum continues with inflation moderating and improving demand. The Indian prices have not corrected as much as the global prices on the back of strong demand in the country. Going forward, we expect the global steel price to see an uptick in order to price-in the impact of the high coking coal costs.

We maintain a NEUTRAL rating for JSW Steel and rollover the estimates to FY26E. We value JSW Steel at a 7xFY26E EV/EBITDA and see the company to be in line with its guidance and project completion targets.

Result Highlights

Revenue from the quarter stood at Rs 41,940 crores (vs our estimate of Rs 44,767 crores), registering a 6% fall on a QoQ basis and a 7% YoY growth.

EBITDA came in-line with our estimates at Rs 7,180 crores (our estimate of Rs 7,029 crores), showing a 9% fall sequentially and a 58% YoY growth.

At the bottom-line, the company reported a profit of Rs 2,450 crores (vs our estimate of Rs 2,117 crores). The profit fell 12% sequentially, however showed a massive 417% jump YoY when it had registered Rs 474 crores at the bottom-line.

Net Sales Realizations (NSR) per tonne at the Indian operations were roughly flat, reporting a ~1% fall on a QoQ basis and ~1% gain on a YoY basis.

Production Highlights

The company reported a consolidated crude steel production of 6.87 mt for the quarter, up 8% QoQ and 12% on a YoY basis.

Sales however took a downward trajectory and came in at 6.00 mt thereby impacting the revenues from operations. The sales figure reports a fall of 5% on a QoQ basis and a 7% rise from Q3FY23 numbers.

Average Indian plant capacity utilization stood at 94% for the quarter and 91% for the 9MFY24.

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