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Quarter hit by lower volumes and realizations

Result Synopsis

JSW Steel’s Q1FY25 performance was below the consensus estimates owing to lowerthan-expected NSR and lower sales volumes. Net revenue from operations reported a 7.2% fall QoQ and was up 1.7% YoY; whereas EBITDA declined 10% on QoQ basis and 21.8% YoY. The company saw costs declining on the coking coal front by $23/t which were offset by lower steel prices and higher iron ore pricing. Going ahead, the company sees falling prices for coking coal and can see about $20/t benefit for the upcoming quarter. The current backward integration has moved up from 33% in FY24 to 38%- 40% during Q1FY25. The company is currently working on its backward integration plans where it sees adding 4.5 mtpa of iron ore capacities in Karnataka. The share of value-added products in the product mix remains strong at 64%, reporting a best-ever percentage of VAP product sales. The company’s consolidated crude steel production stood at 6.35 mt, down 1.2% YoY and 6.5% on a QoQ basis owing to production maintenance shutdowns. The company’s consolidated steel sales stood at 6.12 mt, up by 7.2% on a YoY basis and a fall of 9.1% QoQ. 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. China’s production cuts haven’t taken place and the exports have shot up drastically during the start of CY24, hurting the Indian producers due to the cheap imports flowing in. The Indian story however remains rigid and strong momentum continues with inflation moderating and improving demand across all sectors. We value JSW Steel at an unchanged multiple of 7x FY26E EV/EBITDA, however we make cuts to our pricing estimates and EBITDA/t profile to arrive at our revised target price of Rs 911/sh.

Result Highlights

* Consolidated revenue from operations for the quarter stood at Rs 429,430 mn (vs our estimate of Rs 477,015 mn; owing to lower volumes on account of production maintenance shutdowns), reporting a 7.2% fall sequentially.

* Consolidated EBITDA margins stood at 12.8% (vs our estimations of 15%) for the current quarter vs 13.2% in Q4FY24. The absolute EBITDA came in at Rs 55,100 mn, down 10% on a QoQ basis.

* Consolidated PAT for the quarter stood at Rs. 8,670 mn.

* Capacity utilization at Indian operations stood at 87% owing to maintenance shutdowns at Dolvi and BPSL manufacturing facilities.

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