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-      JSTL posted consolidated revenue of INR419b (up 7% YoY), which was in line with our estimate of INR411b. ASP for 3QFY24 stood at INR69,900/t (up 2% YoY), INR236/t higher than our estimate of INR69,664/t.

-      EBITDA stood at INR72b (up 58% YoY), 9% above our estimate of INR66b. EBITDA/t stood at INR11,967/t, INR807/t higher than our estimate of INR11,159/t.

-      Record dispatches to OEM, auto, RE, and packaging sector along with better operating performance from overseas subsidiaries supported the performance, which was partially offset by lower exports and lower offtake during festive holidays and higher input costs.

-      APAT stood at INR23b (up 366% YoY), 9% above our estimates of INR21b. During 3QFY24, JSTL recognized an unrealized gain of INR1.35b, resulting from the dilution of interest in the company’s JV. This gain was accounted for as ‘other income’.

-      Combined crude steel production stood at 6.9mt (up 12% YoY) and sales volumes came in at 6mt (up 5% YoY). The volumes were driven by higher capacity utilization and better demand scenario in the USA.

-      Net debt in 3QFY24 increased INR100b to INR792b, with a net debt-to-EBITDA ratio of 2.64x (up from 2.52x in 2QFY24) and D/E ratio of 1.02x (up from 0.92x in 2QFY24).

-      Revenue for 9MFY24 was up 8% YoY to INR1,287b; EBITDA was up 108% YoY to INR221b and APAT stood at INR77b.

Highlights from management commentary

-      In 3QFY24, the coking coal cost was up USD21/t (as against the guidance of USD25-30/t). JSTL could achieve lower-than-guided cost due to better blending.

-      Coking coal cost for 4QFY24 is expected to increase USD20-25/t.

-      JSTL has maintained its production and sales target at 26.3mt and 25mt, respectively, for FY24.

-      Capex for FY24 has been slightly trimmed down from INR200-210b to INR180b, with ~INR50b expected in 4QFY24. The decline in capex guidance is due to some spill over to 1QFY25.

-      The 1.5mt BPSL expansion is expected to come on stream by the end of Feb’24 and the full benefit for the same is expected in FY25.

-      The Vijayanagar expansion is expected to come on stream by mid FY25.

-      JSTL is enhancing its RM integration by expanding EC at its existing mines in Karnataka by 4mt to 11mt.

-      JSTL expects to increase the share of captive iron ore to 50% from its current 33% in the next few years.

-      The company has implemented a price hike at the start of CY24 and may implement more hikes in 4QFY24.

Valuation and view

-      The recent increase in coking coal and iron ore prices are expected to increase the cost; however, higher domestic volumes, better product mix, better overseas subsidiaries performance and higher exports are expected to partly mitigate the hike in key input prices in 4QFY24.

-      Though JSTL remains positive on the robust steel demand from India, any increase in iron ore and coal cost would adversely impact the margins. Hence, we have largely retained our FY25/26 EBITDA guidance.

-      JSTL is trading at 5.9x FY26E EV/EBITDA and 2x FY26E P/B. We reiterate our Neutral rating on the stock with a TP of INR910 (6.5x FY26E EV/EBITDA). While we remain positive on the company’s growth prospects, we believe the current valuations reflect the strong outlook.

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