Tag - recovery

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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20 Nov

SBI: FY20 expected to be the big year of recoveries for the banking sector

Update on the Indian Equity Market:

On Tuesday, NIFTY closed marginally higher at ~11,940 points (+0.5%). In the sector-wise performances, PSU BANK (+3.9%) was the best performing sector while METAL (-0.9%) was the worst-performing sector. Amongst the NIFTY 50 Stocks, INFRATEL (+11.0%), BHARTIARTL (+8.7%), AXISBANK (+3.7%) and RELIANCE (+3.6%) were the top gainers while YESBANK (-2.5%), M&M (-2.1%), ZEEL (-2.1%) and TCS (-2.0%) were the worst performers.

SBI: FY20 expected to be the big year of recoveries for the banking sector

Key takeaways from the interview of Mr Rajnish Kumar, Chairman of State Bank of India (SBI); dated 19th November 2019 on CNBC-TV18:

  • The Supreme Court recently set aside the July 4 order of the National Company Law Appellate Tribunal (NCLAT) approving ArcelorMittal’s Rs 42,000-crore bid for acquiring debt-laden Essar Steel. The bench clarified that financial creditors enjoy primacy and the adjudicating authority cannot interfere with the decision approved by the committee of creditors.
  • Talking about the Supreme Court (SC) decision, Mr Kumar said that it was a big positive and he expects the Essar deal to conclude by the end of November 2019.
  • He is of the opinion that this was a landmark judgement, upholding the validity of the rules, laws, as per the Insolvency and Bankruptcy Code (IBC) Act and the recent amendments carried out by the Government of India (GoI) almost in entirety. SC made only one change; it removed the mandatory 330-day period. In case of unusual circumstances, National Company Law Tribunal (NCLT) can relax or allow the time for a resolution plan to be implemented even beyond 330 days. 
  • Mr Kumar expects FY20 to be the year of recoveries for the banking sector with Essar Steel (~₹ 42,000 cr) judgement and the likes of Bhushan Power and Steel (~₹ 20,000 cr), Ruchi Soya and others (where the banking system’s exposure to each is ~ ₹ 5,000-8,000 cr) being lined up for under IBC.
  • The government introduced rules to resolve cases involving finance companies under section 227 of the IBC.  The Reserve Bank of India (RBI) has been vested with the power and, in consultation with the concerned ministry in the government, they can notify which company to be taken to the NCLT.
  • No financial creditor can take any Non-Banking Financial Company (NBFC), Housing Finance Company (HFC) to NCLT. The power vests with the regulator (the RBI, in this case) to identify in consultation with the central government. It will take the matter u/s 227 to the NCLT and appoint an administrator. Once the NCLT has admitted the case, then the committee of creditors’ concept will come in. The rules also talk of an advisory committee. There will be clarity on this when a case is actually taken up.
  • Coming back to the Essar judgement, Mr Kumar mentioned that SBI has fully provided for the outstanding amount. Thus, any recovery will directly be recorded in the quarters’ profit and loss statement.

Consensus Estimate (Source: market screener and investing.com website)

  • The closing price of SBIN was ₹ 327/- as of 19-November-19. It traded at 1.3x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 251/ 280/ 319 respectively.
  • Consensus target price of ₹ 366/- implies a Price to Book multiple of 1.1x on FY22E Book Value of ₹ 319/-.
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