Crude steel production for JSW Steel grew at 5.6% y-o-y in April 2018 to reach 13.61 lakh tonnes. The flat and long steel product segments saw a production of 9.67 lakh tonnes (up 3.8% yoy) and 3.24 lakh tonnes (up 9.5% yoy). TMT prices rose by Rs 1,900 per tonne for the month of April, while flat steel prices were unchanged.
The positive benefit of higher TMT prices as well as higher production implies a significant growth for profitability for JSW Steel in April 2018. The company would also benefit from soft iron ore prices (down 3%) and weak coking coal prices (down 17%) as well as higher sourcing from its iron ore mines in Karnataka. If these pricing conditions persist in May and June, JSW Steel could see its EBITDA per tonne for Q1FY19 rise by Rs 1,500 - 1,700 per tonne q-o-q.
JSW Steel Ltd is expected to see revenue growth aided by (a) 3% CAGR volume growth in sale of steel products supported by government spending on infrastructure, (b) EBITDA margins are also likely to expand by ~300bps owing to better utilization levels and cost savings from backward integration. JSW Steel would see revenue and PAT CAGR of 7.1% and 16.9% over FY18-20E respectively with an EBITDA margin of 23.7% in FY20E. The stock is currently trading at 10.6x FY20E EPS.
JSW Steel has a crude steel capacity of 18mn tonnes per annum (mtpa) at present. The company aims to expand this production capacity to 23mtpa by 2020. The company owns a plate mill in USA and iron ore mines in Chile. JSW Steel and Aion Capital formed a consortium that is the sole bidder for Monnet Ispat. This acquisition is likely to add significant value to JSW Steel given the low valuation of the bid (bid amount implies ~76% haircut to lenders). The crude steel production for the company stood at 16.27mt for FY18, an increase of 3% yoy.
Link to Original Article