INSTITUTIONAL EQUITY RESEARCH

JSW Steel (JSTL IN)

Increasing capex target to put break to deleveraging.
22 May 2021
INDIA | METALS | Quarterly Update
Buy (Maintained)
Top takeaways from Q4FY21 CMP RS 697 / TARGET RS 760 (+9%)
 Revenues jumped 51%/23% yoy/qoq to Rs 269bn, 3% higher than estimates.
 EBITDA at Rs 84bn (+184%/+42% yoy/qoq) were 4% higher than estimates. Standalone SEBI CATEGORY: LARGE CAP
EBITDA at Rs 80bn (+149%/42% yoy/qoq) vs expectation of Rs 76bn). COMPANY DATA
 Standalone sales volumes were in-line at 4.06 mn tonnes (+10%/+4% yoy/qoq). O/S SHARES (MN) : 2417
However; Blended realisations were higher 6% better than exp at Rs 59,096/t MARKET CAP (RSBN) : 1687
MARKET CAP (USDBN) : 22.7
(+46%/+22% yoy/qoq) driving the marginal outperformance. EBITDA/tonne (SA) was 52 - WK HI/LO (RS) : 773 / 163
also Rs 1,000/t higher than estimates at Rs 19,756/t (+127%/+37% yoy/qoq). LIQUIDITY 3M (USDMN) : 94.7
 Net profit stood at Rs 41.9bn (+57% qoq) were in-line with expectation of Rs 42bn. PAR VALUE (RS) : 1
 JSW announced Rs 6.5/share dividend.
SHARE HOLDING PATTERN, %
Mar 21 Dec 20 Sep 20
Key highlights: Sequential 22% increase in realisations partially aided by better mix (value
PROMOTERS 44.1 44.1 43.1
added/export sales at 59%/25% vs 57%/12% qoq) drove operating performance. On DII 6.8 6.4 5.4
consolidated basis, subsidiaries performance (EBITDA at Rs 4.2bn; +34% qoq) also improved. FII 13.3 13.3 15.4
OTHERS 35.8 36.2 36.1
Conference call takeaways.
 JSW is guiding for 17.4mn tonnes (1.5mn from new Dolvi plant) sales in FY21 at KEY FINANCIALS
standalone levels. On Group levels (Monnet+Bhushan) expects sales at 22.9mn tonnes. Rs bn FY21 FY22E FY23E
 Expects domestic demand growth of 16mn to 110mn vs WSA estimate of 106 mn tonne. Net Sales 780.6 1,125.3 1,166.5
EBIDTA 201.4 452.8 409.0
 JSW completed BPSL accusation and currently holding 49% stake (rest with another
Net Profit 79.6 253.2 221.4
group co). Will spend Rs 1.6bn capex to increase capacity from 2.5mn to 3.5mn tpa. EPS, Rs 33.0 105.1 91.9
 Revenues and capex acceptance at US$987mn and US$ 558mn at the end of FY21. PER, x 21.1 6.6 7.6
 Planning to spend Rs 34.5bn to create beneficiation and infrastructure in captive mines. EV/EBIDTA, x 11.0 4.9 5.2
 Net Debt increased Rs 8bn qoq to Rs 526bn due to BPSL (Rs 50bn) and Asian acquisition. P/BV, x 3.6 2.4 1.9
 FY22 capex increased to Rs 182bn (Rs 149 old pending project capex). JSW announced ROE, % 17.0 36.1 24.5
5mn tpa expansion in Vijayanagar (Rs 150bn). FY23 capex target is Rs 175bn. Debt/Equity (%) 140 95 75
 Guiding for turnaround in US Ohio plant (EBITDA +ve) while Italy plant may still take
some time. Monnet expected to remain profitable at EBITDA levels.. CHANGE IN ESTIMATES
 The company has announced that they will pay 10-15% FCF as dividend. __Revised Est.__ _Old Est,__
Rs bn FY22E FY23E FY22E FY23E
Outlook and valuation: Dolvi Phase II commissioning and BPSL acquisition allowed JSPL to Revenue 1,125 1,166 20% 10%
reclaim top stop in domestic steel industry. We expect volume driven growth story to EBITDA 453 409 75% 44%
continue for next couple of years which coupled with higher prices will translate into strong Core PAT 253 221 129% 83%
cash flows. However; JSW as expected has increased its capex guidance to Rs 474bn, to be EPS (Rs) 105.1 91.9 129% 83%
spent over next 3 years which will not allow any meaningful reduction to debt. Though, we
Vikash Singh, Research Analyst
have upgraded our FY22/FY23 estimates by strong 75%/44% due to addition of Dolvi
(+ 9122 6246 4128)
capacity and higher realisations, tendency for unrelenting capex making us a bit cautious on [email protected]
company. We are assigning 6.5x target multiple to standalone business (equals to average of
last 5 years) and arrived at target price of Rs 760. Maintain Buy.

(Rs bn) 4QFY21 4QFY20 yoy 3QFY21 qoq vs. expectations Comments
growth % growth % %
Net Sales 269,340 178,870 50.6 218,590 23.2 4.0 Realizations were marginally better than expectations
EBITDA 84,400 29,750 183.7 59,460 41.9 4.0 Higher realization led to marginal outperformance
EBITDA Margin (%) 31.3 16.6 27.2
Other Income 1,610 1,220 32.0 1,470 9.5 7.3
Interest 10,050 10,360 -3.0 9,770 2.9 5.8 Broadly in-line
Depreciation 12,530 11,080 13.1 12,300 1.9 0.2
PBT 63,430 9,530 565.6 38,860 63.2 4.6
Tax 20,810 -690 0.0 12,120 71.7 14.4
Net Profit 41,910 1,880 2129.3 26,690 57.0 (0.8) In-line with expectaions
PAT Margin (%) 15.6 1.1 12.2
EPS (Rs) 17.7 4.1 330.4 11.0 60.1 1.1

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 JSW STEEL QUARTERLY UPDATE

Performance highlight (Standalone)

Rs / tonne 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21
Volumes (mn tonnes) 3.70 2.80 4.12 3.90 4.06
Realisation 40,595 35,779 40,017 48,615 59,096
EBITDA 8,703 5,104 10,136 14,444 19,756
Source: Company, PhillipCapital India Research

Cost Incidence - Standalone

% of Sales 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21
Raw matrial 49.8 53.7 48.9 35.6 33.3
Employee 4.0 5.3 3.1 2.9 2.4
Power 8.5 10.6 7.3 6.8 6.9
Mining royalty/premium 21.0 19.0 17.7 27.5 26.1
Others 49.8 53.7 48.9 35.6 33.3
Source: Company, PhillipCapital India Research

US Plate and pipe mill

US$ mn 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21
Sales volumes (tonnes)
Plate Mill 55,274 53,210 51,719 18,183 16,485
Pipe Mill 27,534 4,611 447 150 203

Turnover 89.6 46.4 35.9 10.4 18.6

EBITDA (9.9) (11.4) 17.2 (8.5) 6.6
Source: Company, PhillipCapital India Research

JSW Steel Coated Products

Rs mn 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21
Sales (Mn tonnes) 0.47 0.33 0.61 0.61 0.62
Revenue 29,150 20,490 37,820 41,820 49,500
EBITDA 910 280 2,880 3,970 5,190
PAT 190 -310 1,720 2,690 3,240
Source: Company, PhillipCapital India Research

Other subsidiaries
US$ mn 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21
Acero -JSW Steel USA Ohio Inc
Sales (tonnes) 72,888 48,865 20,837 10,892 9,880
EBITDA (US$ mn) -20 -13 -11 (21) (24)

Aferpi -JSW Steel (Italy)

Sales (tonnes) 1,27,961 91,712 58,136 83,994 116,988
EBITDA (€ Mn) -11 -7 -13 (1) (3)
Source: Company, PhillipCapital India Research

Net Debt (Rs bn)

550
545
540
535
530
525
520
515
510
505
500
4QFY20 1QFY21 2QFY21 3QFY21 4QFY21

Source: Company, PhillipCapital India Research

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 JSW STEEL QUARTERLY UPDATE

Financials
Consolidated Income Statement Cash Flow
Y/E Mar, Rs mn FY20 FY21e FY22e FY23e Y/E Mar, Rs mn FY20 FY21e FY22e FY23e
Net sales 718,320 780,590 1,125,311 1,166,462 Pre-tax profit 31,030 120,970 361,720 316,300
Growth, % -13 9 44 4 Depreciation 42,460 46,790 57,141 59,701
Other Operating income 14,940 17,800 18,946 20,174 Chg in working capital 17,660 -9,260 -75,353 3,147
Total income 733,260 798,390 1,144,256 1,186,636 Total tax paid -11,940 -23,100 -107,814 -94,174
Raw material expenses -387,300 -325,080 -435,716 -505,562 Other operating activities -15,534 40,565 -239 -238
Employee expenses -28,390 -25,060 -30,488 -34,934 Cash flow from operating activities 63,676 175,965 235,454 284,736
Other Operating expenses -198,840 -246,840 -225,244 -237,165 Capital expenditure -154,270 -126,320 -183,245 -173,732
EBITDA (Core) 118,730 201,410 452,809 408,975 Chg in investments 5,550 -73,160 -4,287 -4,501
Growth, % (37.4) 69.6 124.8 (9.7) Chg in marketable securities 800 -60 0 0
Margin, % 16.5 25.8 40.2 35.1 Cash flow from investing activities -147,920 -199,540 -187,532 -178,233
Depreciation -42,460 -46,790 -57,141 -59,701 Free cash flow -84,244 -23,575 47,922 106,503
EBIT 76,270 154,620 395,669 349,274 Equity raised/(repaid) 0 10 0 0
Growth, % (48.8) 102.7 155.9 (11.7) Debt raised/(repaid) 150,170 50,580 10,438 10,000
Margin, % 10.6 19.8 35.2 29.9 Dividend (incl. tax) -5,616 -18,485 -19,907 -19,907
Interest paid -42,650 -39,570 -40,461 -40,137 Cash flow from financing activities 142,404 31,675 -9,778 -10,232
Other Non-Operating Income 5,460 5,920 6,512 7,163 Net chg in cash 58,160 8,100 38,144 96,272
Pre-tax profit 31,030 120,970 361,720 316,300
Tax provided 9,060 -41,420 -108,516 -94,890 Valuation Ratios
Profit after tax 40,090 79,550 253,204 221,410 FY20 FY21e FY22e FY23e
Others (Minorities, Associates) -900 10 0 0 Per Share data
Net Profit 39,190 79,560 253,204 221,410 EPS (INR) 19.7 33.0 105.1 91.9
Growth, % (37.2) 68.4 218.3 (12.6) Growth, % (37.2) 67.7 218.3 (12.6)
Net Profit (adjusted) 47,240 79,560 253,204 221,410 Book NAV/share (INR) 152.5 194.0 290.7 374.3
Unadj. shares (m) 2,400 2,410 2,410 2,410 FDEPS (INR) 19.7 33.0 105.1 91.9
Wtd avg shares (m) 2,400 2,410 2,410 2,410 CEPS (INR) 40.7 52.4 128.8 116.6
CFPS (INR) 51.9 82.1 117.1 117.9
Balance Sheet DPS (INR) 2.0 6.5 7.0 7.0
Y/E Mar, Rs mn FY20 FY21e FY22e FY23e Return ratios
Cash & bank 120,030 128,130 166,274 262,546 Return on assets (%) 6.7 8.5 18.0 13.8
Marketable securities at cost 20 80 80 80 Return on equity (%) 12.9 17.0 36.1 24.5
Debtors 45,050 44,860 61,661 63,916 Return on capital employed (%) 10.3 12.3 25.0 18.6
Inventory 138,640 142,490 184,983 207,726 Turnover ratios
Loans & advances 38,940 21,910 30,830 31,958 Asset turnover (x) 0.9 1.0 1.2 1.1
Other current assets 3,310 3,300 3,300 3,300 Sales/Total assets (x) 0.6 0.6 0.7 0.6
Total current assets 345,990 340,770 447,128 569,526 Sales/Net FA (x) 0.9 0.9 1.1 1.0
Investments 12,570 85,730 90,017 94,517 Working capital/Sales (x) (0.3) (0.3) (0.2) (0.2)
Gross fixed assets 740,720 811,280 934,525 1,088,257 Fixed capital/Sales (x) 0.8 0.8 0.6 0.7
Less: Depreciation -152,150 -198,940 -256,081 -315,782 Receivable days 22.9 21.0 20.0 20.0
Add: Capital WIP 268,570 324,330 384,330 404,330 Inventory days 70.4 66.6 60.0 65.0
Net fixed assets 857,140 936,670 1,062,775 1,176,806 Payable days 106.4 93.2 100.0 100.0
Non-current assets 102,500 120,000 172,994 179,320 Working capital days (107.2) (103.1) (63.3) (63.1)
Total assets 1,318,200 1,483,170 1,772,913 2,020,169 Liquidity ratios
Current ratio (x) 0.8 0.8 0.9 1.1
Current liabilities 436,880 432,990 476,026 508,666 Quick ratio (x) 0.5 0.5 0.6 0.7
Provisions 4,780 9,090 9,545 10,022 Interest cover (x) 1.8 3.9 9.8 8.7
Total current liabilities 441,660 442,080 485,570 518,688 Total debt/Equity (%) 178.9 139.9 94.9 74.8
Non-current liabilities 516,300 579,640 593,144 606,341 Net debt/Equity (%) 146.1 112.5 71.1 45.7
Total liabilities 957,960 1,021,720 1,078,714 1,125,029 Valuation
Paid-up capital 2,400 2,410 2,410 2,410 PER (x) 8.9 21.1 6.6 7.6
Reserves & surplus 363,590 465,230 698,288 899,554 PEG (x) - y-o-y growth (1.0) 0.3 0.0 (0.6)
Shareholders’ equity 360,240 461,450 694,199 895,140 Price/Book (x) 1.0 3.6 2.4 1.9
Total equity & liabilities 1,318,200 1,483,170 1,772,913 2,020,169 Yield (%) 1.4 0.9 1.0 1.0
Source: Company, PhillipCapital India Research Estimates EV/Net sales (x) 1.2 2.8 1.9 1.8
EV/EBITDA (x) 7.4 11.0 4.8 5.1
EV/EBIT (x) 11.6 14.3 5.5 6.0

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 JSW STEEL QUARTERLY UPDATE

Stock Price, Price Target and Rating History

750

650

550

450

B (TP 410)
350
S (TP 265)
S (TP 225) S (TP 233)
250
S (TP 198)
N (TP 210)
B (TP 180)
150

50
A-18 J-18 O-18 J-19 A-19 J-19 O-19 J-20 A-20 J-20 S-20 D-20 M-21

Rating Methodology
We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one
year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation
stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks

Rating Criteria Definition
BUY >= +10% Target price is equal to or more than 10% of current market price
NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%
SELL <= -10% Target price is less than or equal to -10%.

Mid cap and Small cap stocks

Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%
SELL <= -15% Target price is less than or equal to -15%.

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 JSW STEEL QUARTERLY UPDATE

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 JSW STEEL QUARTERLY UPDATE

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of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S.
securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory
requirements comparable to those in effect within the United States.
The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other
than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related
financial instruments.
Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by PHILLIPCAP with respect
to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or
indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a
consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts,
assumptions and valuation methodology used herein.
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