JSW Steel

07 Jul

Steel prices to be under pressure in the short term – Jindal Steel and Power

Update on Indian Equity Market:

On Wednesday, markets ended higher with Nifty closing 61 points higher at 15,879. TATASTEEL (+5.0%), JSWSTEEL (+2.7%), HINDALCO (+2.1%) were the top gainers on the index while TITAN (-2.0%), ONGC (-1.2%), and MARUTI (-0.9%) were the top losers for the day. Among the sectoral indices,  METAL (+2.2%),  REALTY (+2.0%), and FINANCIAL SERVICES (+0.6%) were the top gainers, MEDIA (-0.2%), and AUTO (-0.1%) were the only losers.

 

Excerpts of an interview with Mr. V R Sharma, MD, and CEO of Jindal Steel and Power on CNBCTV18 dated 5th July 2021:

 

  • Short-term pressure on Steel Prices is seen in International and European Spot Markets, with the prices hovering around USD 1,100 and 1,200 per tonne. This due to lower exports to Europe due to tariff and quota fears.
  • There is a value difference of around USD 200-250 per tonne between export and Indian domestic markets. There is a scope of reducing the delta to around USD 150 per tonne.
  • There is pressure on the demand for hot-rolled coils which forms part of the company’s exports which are 35-40% of the company’s total sales. This has resulted in the prices reducing to USD 1,020 per tonne.
  • The prices of other products are stable. 
  • There is a softening of about Rs 1,000-1,200 per tonne across all the products, which is normal because international prices play a vital role in today’s markets.
  • In terms of domestic demand, steel plates have shown a good demand and hot-rolled coils have shown moderate demand. The demand is very sluggish in the structural steel, construction steel, and rebar segments.
  • The company has produced 2.03 million metric tonnes of steel in 1QFY22 and is on track to manufacture 8.3 million metric tonnes for FY22. The exports for 1QFY22 were 0.6 million metric tonnes with full-year exports expected to be around 2.8 million metric tonnes.
  • The Company has Rs 165bn of debt as of 1QFY22 which the company is planning to reduce below Rs 100bn over FY22.

 

Asset Multiplier Comments:

  • Due to the Covid-19 pandemic, the demand for steel across domestic and international markets has been impacted. With the economic recovery,  there’s optimism for the sector.
  • The Company is taking efforts to deleverage its balance sheet in order to improve its performance across key operating metrics which will help the company grow further.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Jindal Steel and Power was ₹ 400/- as of 7-July-2021.  It traded at 5x/ 8x the EPS estimate of ₹ 75/ ₹ 51 for FY22E/23E respectively.
  • The consensus price target is ₹ 513/- which trades at 10x the EPS estimate for FY23E of ₹ 51/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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29 Oct

Operations back to pre-Covid levels – JSW Steel

Update on the Indian Equity market:
Amid weak global cues from spiking Covid-19 cases worldwide and uncertainty over the US presidential election, Nifty 50 ended 1.3% lower at 11,730 on Wednesday. Among the stocks, BHARTIARTL (3.4%), UPL (+2.8%), and M&M (+1.2%) led the gainers while HDFC (-3.5%), INDUSINDBK (-3.2%), ICICIBANK (-3.2%) led the losers. None of the sectoral indices ended the day in the green. FINANCIAL SERVICES (-2.3%), PRIVATE BANK (-2.2%), FINANCIAL SERVICES 25/50 (-2.1%) led the losers.

Excerpts of an interview of Mr. Seshagiri Rao, Joint MD, and CFO, JSW Steel with Financial Express on 27th October 2020:
• JSW Steel reported strong numbers for the September quarter with improvement in revenues and margins. Volumes were significantly better, both on a YoY and MoM basis. There has been a strong recovery in business activity as compared to 1QFY21. Although there are certain seasonal factors that impact demand in 2Q the overall environment is upbeat and expects the second half to see strong growth momentum.
• There is a very good improvement with regards to offtake by the auto sector. The revival in the auto sector was unexpected and sales to the auto industry went up 33% YoY.
• Although the commercial sector is still lagging, tractors, two-wheelers, and passenger vehicles are doing reasonably well. The demand is not expected to weaken in 2HFY21, on account of the festive season and the government’s attention to give fiscal stimulus. Demand will definitely see an MoM improvement, though YoY improvement will still take some time.
• There is good traction in the coated steel products, appliances, packaging, solar and government-aided projects. Rural demand is resilient and good monsoon and government initiatives will improve demand further.
• Long product demand was impacted by the monsoon and remained low. Construction activity has gained pace now and both 3Q and 4Q are expected to see good demand. Packaging and color-coated areas saw good offtake, which is expected to continue the rest of the year.
• Operations are back to pre-Covid levels and achieved average capacity utilization of around 86% in the quarter, versus 85% in 2QFY20. There were some disruptions due to the unavailability of iron ore and due to the increase in exports, evacuation of iron ore from other mines remained a challenge. The company is hopeful of the situation normalizing in the next quarter.
• In the second quarter, the steel prices have gone up by 11% and international prices have gone up by 16%. There has been an improvement in sales realizations, though realizations in India are increasing at a slower pace compared to that globally.
• The costs during the quarter were lower on account of the natural gas price which has come down. The power cost is lower because thermal coal prices have come down. Iron ore prices have gone up due to supply constraints. They will be able to reduce the cost of transporting iron ore from the mine to the railway siding, to an extent. They are also working on reducing the mining costs and want to set up a slurry pipeline to bring iron ore from the mine to the port. Though that will take time, once construction is completed, logistics costs will reduce drastically.
• The share of value-added and special products has now increased substantially to 51% of sales volume. There is substantial demand for color-coated products is on the rise from steel-using industries. There are plans to expand capacities at the Vasind, Tarapur, and Kalmeshwar plants by the end of this financial year.
• Once the high margin business like Asian color coated started coming in, margins will also get a lift.
• The NCLT has given approval for the plan to acquire the Asian Colour Coated Company. They are awaiting the final order to see if there are any modifications.
• They expect the Bhushan Power and Steel resolution to be settled by December 2021.

Consensus Estimate: (Source: market screener website)
• The closing price of JSW Steel was ₹ 306/- as of 28-October-2020. It traded at 18x/ 12x/ 10x the consensus earnings estimate of ₹ 17.3/ 26.3/ 30.4 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 303 implies a PE multiple of 10x on FY23E EPS of ₹ 30.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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14 Aug

Making structural changes to diversify from auto industry – JSW Steel

Update on Indian equity market:
Nifty remained muted on the weekly expiry day, ending 8 points lower at 11,300. Within NIFTY50, TATAMOTORS (+4.5%), LT (+4.4%) and HINDALCO (+4.2%) were the top gainers while SUNPHARMA (-2.1%), EICHERMOT (-2.1%) and BHARTIARTL (-2.0%) were the top losers. Among the sectoral indices, MEDIA (+1.4%), AUTO (+1.2%) and METAL (+1.1%) were the highest gainers whereas PSU BANKS (-1.0%), PHARMA (-0.9%) and BANK (-0.3%) were the laggards.
Excerpts of an interview with Mr. Seshagiri Rao, Joint Managing Director & CFO, JSW Steel (JSW) published in Economic Times dated 04th August 2020:
•Mr Rao said that in the normal scenario, the company was supplying about 2 million tonne to the Auto sector from the total annual capacity of 15 million tonne. During the pandemic lockdown, the number had dropped by as much as about 65%.
•The company is witnessing demand for steel picking up in tractors and two-wheelers. The demand from top-2 passenger car makers, Maruti and Hyundai has been improved in July over June. The demand for steel in the commercial vehicles segment however remained depressed.
•The company’s alloy steel plant at Salem produces about 1 lakh tonne out of which 70,000 tonne capacity is on rolling basis. There is one bloom mill completely dedicated to the auto sector, and there is a bar mill which can have multiple applications, and finds use in the sectors other than the auto also.
•In the lockdown, the bar mill production was not reduced, whereas the bloom mill production came down to 0 in the month of April, which is currently operating at 10,000- 15,000 tonne a month.
•The changes that company is making on the Auto side are not temporary, they are all structural. The growth in demand for steel from the Auto sector is not the same as the industry has witnessed in the past. He expects it to never be the same and therefore diversification has a strategic component with itself.
Consensus Estimate: (Source: market screener website)
•The closing price of JSW Steel was ₹ 259/- as of 13-Aug-2020. It traded at 38x/13x/ 9x the consensus EPS estimate of ₹ 6.8/ 20.5/ 27.8 for FY21E/ FY22E/ FY23E respectively.
•Consensus target price of ₹ 233/- implies a PE multiple of 8x on FY23E EPS of ₹ 27.8.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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06 Jan

JSW Steel expects to be a 50 mn ton company by 2030: Seshagiri Rao Joint MD & Group CFO, JSW Steel

Update on the Indian Equity Market:

On Friday, Sensex fell over 162 pts and Nifty ends below 12,250. Market remained under pressure following US action to kill a top Iranian commander in an airstrike that ratcheted up tensions between the two countries.

Among the sectors, IT and pharma ended higher, while selling seen in the auto, bank, infra, FMCG and metal stocks. Among stocks, Zee Entertainment, Bharti Infratel, Asian Paints, Eicher Motors and Axis Bank were among major losers on the Nifty, while gainers were Sun Pharma, TCS, HCL Technologies, Tech M, GAIL and Infosys.

JSW Steel expects to be a 50 mn ton company by 2030: Seshagiri Rao Joint MD & Group CFO, JSW Steel

Excerpts from an interview with Seshagiri Rao, Joint Managing Director & Group CEO, JSW Steel; dated 2nd January 2020:

  • For the steel industry to be understood, one has to see what is happening globally because it is a globally traded commodity. Almost one-third of the steel is traded globally.
  • The trade dispute between China and the US was the starting point which led to an overall slowdown in the global economy and that has impacted the steel industry.
  • The steel-consuming sectors like construction, infrastructure, real estate, manufacturing and auto have seen slowdown globally and that has an impact. Global developments contributed to a bigger slowdown in India.
  • The slowdown in government expenditure and credit flow to the industry together had a very serious impact in the overall fall in demand and also fall in prices. At the same time, raw material prices have not fallen in the same proportion.
  • The FTA countries like Japan, Korea, and Asian countries continue to export steel into India because it has zero percent duty. It has gone up from around 58% last year to 77%. All these factors led to a fall in steel prices in India.
  • A bit of recovery was seen in Oct-19. So, the Dec-19 quarter ended EPS is going to be better which is heard from other steel companies. They have reduced inventories and their sales were better in the last quarter. This is the trend seen, which is expected to be better in the third quarter compared to the second quarter and 2HFY20 is expected to be better.
  • Steel prices have started going up from November 2019. Otherwise, the domestic prices are at a discount to the landed cost of imports in India. But prices are picking up and that is positive news stemming from the revival in domestic demand.
  • International prices used to be $430 and currently it is close to $520. Rupee depreciation has happened in India. So there is a scope for increase in domestic prices.
  • The international prices have started going up and in line with that, local prices have started increasing. Now, everybody has come back to the market for restocking and that is also one of the reasons why the price increases are seen.
  • JSW Steel increases the price every half year. So, whatever price fall has happened in the first half of the financial year, has been renegotiated for the second half. The prices in the second half for the auto sector were much lower than the current prices. This is one of the reasons why the price increase other than the auto sector will be better in the second half of this year over the last year because nobody is expecting global prices will fall below these levels so in line with that the local prices also will increase.
  • As far as India is concerned, steel demand will be driven by mostly infrastructure construction and real estate. The national infrastructure pipeline which has been announced for an investment of Rs 102 lakh crore in that the roads, energy, and urbanization will contribute close to 60% of the total infrastructure build in India. Out of the 60%, they are mostly steel-consuming industries where steel demand is quite positive for this pipeline of national infrastructure which has been announced.
  • The demand for steel in India is expected to look up from here on. JSW Steel is the only company which has been bringing in new capacity of 5 mn ton in FY21. And at the same time, downstream capacity expansion by 4 mn ton is coming up. This downstream capacity is in high value-added products. The expansions are very well-timed. The 18 mn ton capacity will go to 23 mn ton.
  • JSW Steel is currently running at 15-16% of present installed capacity. Even if it is assumed that current market share is maintained in the overall installed capacity, if 300 million ton is India’s capacity by 2030, JSW steel will be in the range of 45 to 50 mn ton by 2030. Considering the pace of growth in India, if this 300 million ton is expected to be achieved even earlier than 2030, JSW Steel will also grow at the same pace.

Consensus Estimate: (Source: market screener)

  • The closing price of JSW Steel was ₹ 272/- as of 3rd January 2020. It traded at 14x/ 12x/ 10x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 19/23/28 respectively.
  • Consensus target price of ₹ 253/- implies a PE multiple of 9x on FY22E EPS of ₹ 28/-.
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