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8/6/2019 Edelweiss Report on Ispat
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Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
•
Incorporating JSW Ispat and Chile iron ore mines in estimates
We are introducing JSW Ispat (erstwhile Ispat Industries) and Chile iron ore
mines in our estimates. We expect JSW Ispat to report EBITDA/t of USD 71/t in
FY12 and USD 90/t in FY13. Shipments have commenced from Chilean iron ore
mines. We expect volumes of 0.8 mt in FY12 (management guidance 1 mt) and
1 mt in FY13 (management guidance 2 mt), potentially contributing ~USD 32
mn and USD 30 mn to FY12 and FY13 estimated EBITDA, respectively.
Management guiding for FY12 EBITDA/t of USD 170-180
JSW Steel has guided for USD 170-180/t of EBITDA in FY12 as a result of
increased captive coke, iron ore beneficiation and reduced coke rate/hard coking
coal proportion. We retain our assumption of USD 177/t. Q4FY11 EBITDA/t is
likely to be over USD 200/t.
3.2 mtpa expansion delayed to mid May; guidance retained at 9 mt
The 3.2 mtpa expansion which was expected to be completed by the end of
March 2011 is now likely to get over in May 2011. Certain facilities (casters,
converters, ladle furnaces) have started trial runs. However, the blast furnace is
delayed. Despite the delay, management is guiding for 9 mt of volumes in FY12.
We retain our assumption for FY12 at 8.5 mt.
Prefer to value JSW Ispat on replacement cost basis
We use the replacement cost method to value JSW Ispat. We assign a 40%
discount to the equity valuation based on replacement cost method to arrive at a
fair value of INR 53/share of JSW Steel. Our valuation of JSW Ispat is 41% less
than the investment made by JSW Steel (INR 21.6 bn) in JSW Ispat
Outlook and valuations: Positive, maintain ‘BUY’
We like JSW Steel for its volume growth and low conversion cost. While, JSW
Ispat will be a drag on valuations, this could be partially offset by the Chile iron
ore mines (valuation: INR 28/share). We increase our FY12 and FY13 estimated
EBITDA by 3% and 4%, respectively, but lower our EPS estimates by 6% and
2.5% for FY12 and FY13 respectively, after incorporating Chilean iron ore mines
and JSW Ispat. We retain ‘BUY/ SO’ with a fair value of INR 1,190/share.
India Equity Research | Metals and Mining Company Update
JSW STEEL
Revision in estimates April 11, 2011
Reuters: JSTL.BO Bloomberg: JSTL IN
EDELWEISS 4D RATINGS
Absolute Rating BUY
Rating Relative to Sector Outperformer
Risk Rating Relative to Sector Medium
Sector Relative to Market Overweight
Note:Please refer last page of the report for rating explanation
MARKET DATA CMP : INR 957
52-week range (INR) : 1,400 / 751Share in issue (mn) : 223.1
M cap ( INR bn/USD mn) : 214 /4,808
Avg. Daily Vol. BSE/NSE (‘000) : 1,769.9
SHARE HOLDING PATTERN (%)
Promoters* : 37.7
MFs, FIs & Banks : 5.2
FIIs : 26.1
Others : 31.0
* Promoters pledged shares
(% of share in issue) : 15.5
PRICE PERFORMANCE (%)
Sto ck N ifty EW Met als and
Mining Index
1 month 4.1 6.7 4.9
3 months (13.5) (2.8) (5.6
12 months (21.8) 10.1 (11.8
Prasad Baj
+91 22 4040 7415
prasad.baji@edelcap.com
Faisal Memon
+91 22 6623 3478
faisal.memon@edelcap.com
Financials (Consolidated)
Year to March FY09 FY10 FY11E FY12E
Revenues (INR mn) 159,348 189,572 236,345 379,259
Rev. growth (%) 27.9 19.0 24.7 60.5
EBITDA (INR mn) 21,871 40,707 46,563 74,707
Adjusted net profit (INR mn) 1,712 14,980 15,092 26,921
Basic shares outstanding (mn) 187 187 241 241
Diluted EPS (INR) 10.4 81.3 64.0 111.9
EPS growth (%) (87.6) 681.5 (21.3) 75.0
Diluted P/E (x) 94.2 12.0 15.3 8.8
EV/EBITDA (x) 15.8 8.4 8.9 6.1
ROAE (%) 3.6 19.4 12.1 14.5
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2 Edelweiss Securities Limited
Metals and Mining 3.2 mtpa expansion at Vijaynagar delayed to mid May; volume guidance
retained at 9 mt
The 3.2 mtpa expansion, which was expected to be completed by the end of March 2011,
is now likely to get over in May 2011. Certain facilities (casters, converters, ladle
furnaces) have started trial runs. However, the blast furnace is delayed. Despite the
delay, management is guiding for 9 mt of volumes in FY12. We retain our assumption for
FY12 at 8.5 mt.
EBITDA/t guidance of USD 170-180/t in FY12
Management has reiterated their view of achieving USD 170-180/t of EBITDA in FY12,
despite the pressure of increased coking coal prices. The cost push of coking coal is
expected to be negated by the possible savings accruing from the increased contribution
of captive coke (currently 85%, expected 100% in FY12), higher iron ore beneficiation
capacity, reduced coke rate and lower proportion of hard coking coal (lower 500bps) in
blast furnace.
The proportion of iron ore fines is expected to increase from 65% to 85% in FY12, while
coke rate is targeted to be reduced by 50kg/t. This would result in cost savings of USD
25-30/t.
Our current EBITDA/t estimate for FY12 is USD 177/t and we retain the same.
Shipment from Chile iron ore mines have started
Reserves and production
The Chile iron ore mines contain reserves of ~150 mt in 1% area (total area is ~26,245
Ha). Shipments have started with management guiding for 1 mt in FY12 and 2 mt in
FY13. We are incorporating 0.8 mt and 1 mt in FY12 and FY13, respectively.
Investment in the mines
JSW Steel acquired a 70% interest in these mines for a consideration of ~USD 250 mn in
2008. The agreement also provides JSW the right to use the existing Caldera port. The
company has made an investment of USD 25-30 mn till date and the likely investment inthe next two years is expected to be USD 70-75 mn. The FOB cash cost is expected to
be USD 65/t (63% Fe grade), with freight cost of USD 10-15/t and royalty cost of ~USD
4-5/t. The cash cost also includes the cost of beneficiation.
Incorporating Chile mines in our estimates
We believe that commissioning of these mines will provide financial hedge to the
company as it currently has only ~20% integration from its captive iron ore mines in
India. At current iron ore prices, the mines can potentially deliver ~INR 1.5 bn (JSW
Steel’s share) to the EBITDA. We include the mines in our valuation, assigning it value of
INR ~28/share.
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Edelweiss Securities Limited 3
JSW Steel
JSW Ispat
Estimating JSW Ispat’s EBITDA at USD 71/t in FY12 and USD 90/t in FY13
Considering higher raw material costs and delay in synergy benefits, our estimated
EBITDA of USD 90/t in FY13 is lower than the earlier anticipated EBITDA/t of USD 130/t.
Post the shutdown in December 2010, the capacities of JSW Ispat have ramped up
significantly and are currently operating at 80-90% utilisation levels. The management
expects volumes of 3 mtpa (90% utilization) from these facilities. However, we are
considering volumes of 2.8 mt for FY12 as well as FY13.
On the cost savings initiatives, though sourcing of iron ore (lumps and fines) from
Karnataka has already started, sourcing of power from JSW Energy, pellets from JSW
Steel and coke from JSL are yet to materialise and we expect delays on this front.
Management expects EBITDA of USD 80-90/t in FY12. We estimate JSW Ispat to report
EBITDA/t of USD 71/t and USD 90/t in FY12 and FY13, respectively.
Backward integration plans proposed
JSW Ispat has undertaken a INR 31.4 bn capex to set up backward integration facilitiesto gain better control over cost. The facilities being implemented are a 110 MW power
plant, a 3 mtpa pellet plant and a 1 mtpa coke oven plant. Besides, the company will
also expand its capacity from 3.3 mtpa to 4.0 mtpa at an investment of INR 14 bn
(included in INR 31.4 bn).
However, progress on this is slow and we expect it to be delayed from the target
commissioning date of FY13 end.
Table 1: Planned capex at JSW Ispat for backw ard integration
Source: Company, Edelweiss research
Current facilities of JSW Ispat: A snapshot
JSW Ispat’s 3.3 mtpa HRC plant produces HRC through the gas-based DRI (1.6 mtpa) –
blast furnace (2 mtpa) – EAF (4.2 mtpa) – thin slab casting – hot strip mill (HSM) (3.3
mtpa) route. The plant has adequate land to house the proposed projects of 110 MW
captive power plant, 1 mtpa coke oven, and 3 mtpa pellet plant and expansion from 3.3
mtpa to 4 mtpa.
Key advantages of the plant are:
Proximity to flat steel consumers in a radius of 110 km, including the automobile hub of
Pune and re-rollers.
• Low employee base of 3,500 keeps staff cost low.
• Gas-based process provides better quality DRI compared to coal-based process.
• Shore-based plant reduces internal freight and facilitates export of HRC (though
proportion is low at 6%). Captive jetty of 12 mtpa capacity for both in-bound and
out-bound logistics with up to 3 mtpa excess capacity available for commercial use.
Facility (INR mn)
110 MW power plant 4,900
3 mtpa pellet plant 6,000
1 mtpa coke plant 5,000
Other cost saving capex 1,320
Enhancement of capacity from 3.3 to 4 mtpa 14,180
Total 31,400
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4 Edelweiss Securities Limited
Metals and Mining • The adoption of DRI-BF-EAF route reduces power consumption in EAF by over 50%
(however, coke has become an even bigger issue) while thin slab casting reduces
conversion cost by obviating need for reheating and improving yield.
• EAF (con arc based) can accept all possible metallic inputs – hot metal, DRI
andscrap in any proportion (though productivity is not the same across various
mixes).
Table 2: Current capacities at JSW Ispat
Source: Company, Edelweiss research
Valuations
JSW Steel: Rolling forw ard to FY13; fair value of INR 1,190/ share
• JSW Steel consolidated (ex-Ispat); valuation at 6x FY13E EV/ EBITDA
We roll forward to FY13 to value JSW Steel’s consolidated business (ex-JSW Ispat),
to arrive at a fair valuation of INR 1,190/share. We assign 6x to steel business’ estimated EBITDA of INR 76.1 bn in FY13 and ascribe 5x to the Chilean iron ore
business (contributes ~INR 28/share to JSW Steel’s fair valuation).
We apply a 22% discount to the expected CWIP at end of FY12 of ~INR 40 bn for
the West Bengal project and ~INR 10 bn for the CRM expansion in Vijaynagar, as
they are due to be completed in FY14.
• JSW I spat: Valuation based on replacement cost method
We prefer to value JSW Ispat on a replacement cost method, as valuing it on
earnings basis provides negative valuation. We consider a replacement value of USD
1,000/t for JSW Ispat’s acquisition of 3.3 mt, which corresponds to an equity
valuation of INR 49.7 bn. The debt considered in our valuation includes acceptances
of INR 18.8 bn. To this, we apply a 40% discount to account for the expected weak
earnings and high debt. We arrive at a fair value of INR 29.8 bn, translating into
contribution of INR 53/share of JSW Steel (considering the 43% stake).
Our valuation of JSW Ispat is at a 41% discount to the investment made by JSW
Steel in JSW Ispat (INR 21.6 bn), equivalent to INR 89.5/share.
DRI Hot metal HRC Sinter
Capacity (MT) 1,600,000 2,000,000 3,300,000 2,800,000
Capacity (TPD) 4,748 5,714 9,429 8,000
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Edelweiss Securities Limited 5
JSW Steel
Table 3: Fair valuation of INR 1,190 based on SOTP
Source: Company, Edelweiss research
* Debt includes acceptances of INR 50.5 bn
EV/EBITDA valuation for JSW Steel (ex-JSW Ispat) FY13E
Applicable multiple (x) 6.00
Steel business EBITDA (INR mn) 76,084
Applicable multiple (x) 5.00
Chile iron ore mines EBITDA (INR mn) 1,367Enterprise value (INR mn) 463,339
Less:Net debt- previous FY (INR mn)* 223,795
Add: CWIP - previous FY (INR mn) 38,934
Less:Preference capital (INR mn) 2,790
Less:Minority interest (INR mn) 2,187
Market cap (INR mn) 273,502
No. of shares (mn) 241
Fair value per share (INR) (Steel+ Chile iron ore) 1,137
Replacement cost method valuation for JSW Ispat FY13E
Capacity of JSW Ispat (mt) 3.3
Replacement cost (USD/t) 1,000
EV (USD mn) 3,300
EV (INR mn) 148,500
Debt (INR mn) 98,800
Equity valuation (INR mn) 49,700
Discount factor (%) 40.0%
Equity valuation at discount (INR mn) 29,820
Stake of JSW in Ispat (%) 43.0%
Value of JSW stake in Ispat (INR mn) 12,831
Per share of JSW (INR) 53
JSW investment (INR mn) 21,570
JSW investment per share (INR) 89.5
Discount at above valn -40.5%
Value of JSW including JSW Ispat 1,190
Current market share (INR) 979
Upside (%) 21.5
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6 Edelweiss Securities Limited
Metals and Mining JSW Steel: Revising estimates (Ex-JSW Ispat)
We are lowering our FY12E EBITDA and PAT by ~1.6% and 2.2%, respectively, since we
have lowered the expected EBITDA from US operations from USD 71 mn to USD 16 mn.
Our EBITDA/t estimate for JSW steel (standalone), however, stands unchanged at USD
177/t in FY12. The interest and depreciation charges for the Chilean iron ore operations
are already a part of the existing capital charges and, hence, will have minimal
incremental impact.
Table 4: Revising JSW Steel’s (ex-JSW I spat) EBITDA downwards by 1.6% for FY12 and 1.7% for FY13
Source: Company, Edelweiss research
Introducing JSW Ispat: EBITDA/t to be lower than earlier anticipated
We initially anticipated JSW Ispat to report EBITDA/t of USD 130/t in FY13. However,
after incorporating the higher coking coal price assumptions, detailed review of financials
and delay in synergy benefits, we now estimate JSW Ispat to report an EBITDA/t of USD
71/t and USD 90/t in FY12 and FY13, respectively.
We are considering volumes of 2.8 mt against management guidance of 3 mt for FY12
and FY13. Though the company has already started sourcing iron ore fines and lumps
from Karnataka instead of sourcing high cost iron ore, other synergy benefits such as
pellets from JSW Steel, coke from JSL and power from JSW Energy will take time to flow
in. Moreover, the increased hard coking coal cost in FY12, from USD 251/t to USD 292/t,
will also have its impact. As a result we expect a modest EBITDA/t of USD 71/t and USD
90/t in FY12 and FY13, respectively.
Also, we believe interest cost will remain high in FY12 and FY13 as a result of delay in
debt restructuring and higher interest rate scenario. We estimate interest cost of INR 8.1
bn (management guidance of INR 7.2 bn) in FY12 and INR 8.2 bn in FY13. We expect
JSW Ispat to report a net loss of INR 1.3 bn in FY12 and to break-even at the PAT level
in FY13.
New Old % change New Old % change
JSW Steel Consolidated- Ex JSW I spat
Crude steel production (mt) 9.0 9.0 0.0 9.7 9.7 0.0
Finished steel production (mt) 8.5 8.5 0.0 9.2 9.2 0.0
Net blended realisation (INR/tonne) 37,805 36,402 3.9 37,666 36,267 3.9
Net blended realisation (USD/tonne) 822 791 3.9 819 788 3.9
EBITDA (INR/tonne) 8,124 8,143 (0.2) 8,155 8,166 (0.1)
EBITDA (USD/tonne) 177 177 (0.2) 177 178 (0.1)
Consolidated financialsRevenue (INR mn) 333,530 328,173 1.6 362,915 355,560 2.1
EBITDA (INR mn) 71,145 72,331 (1.6) 77,451 78,811 (1.7)
Adjusted PAT (INR mn) 28,017 28,645 (2.2) 32,142 32,421 (0.9)
EPS ( INR) 116.4 119.1 (2.2) 133.6 134.8 (0.9)
FY12E FY13E
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Edelweiss Securities Limited 7
JSW Steel
Table 5: JSW-Ispat to break-even at net level in FY 13
Source: Company, Edelweiss research
Financial Snapshot: JSW w ith Ispat
Incorporating JSW Ispat and Chile operations in our estimates results in a 3.3% and 4%
increase in our FY12 and FY13 EBITDA estimate, to INR 74.7 bn and INR 81.8 bn. As per
management guidance, JSW Ispat’s financials have been proportionately incorporated
considering JSW Steel’s ~43% stake.
However, higher capital charges at JSW Ispat result in lowering of net profit by 6% for
FY12 (INR 26.9 bn) and 2.5% to for FY13 (INR 31.6 bn).
Table 6: Revising consolidated net profit downw ards by 6% for FY12 and 2.5% for FY13
Source: Company, Edelweiss research
FY12E FY13E Y-o-Y (%)
JSW Ispat
Volumes (mt) 2.8 2.8 0.0
Net blended realisation (INR/tonne) 37,794 38,013 0.6
Net blended realisation (USD/tonne) 822 826 0.6
Revenue (INR mn) 106,298 106,914 0.6
EBITDA (INR mn) 8,279 10,506 26.9
Net profit (INR mn) (1,347) 148 NM
EBITDA (INR/tonne) 3,275 4,156 26.9
EBITDA (USD/tonne) 71 90 26.9
With JSW
Ispat and ChilePrevious % change
With JSW
Ispat and ChilePrevious % change
JSW Steel
Consolidated financials
Revenue (INR mn) 379,259 328,173 15.6 408,909 355,560 15.0
EBITDA (INR mn) 74,707 72,331 3.3 81,970 78,811 4.0Adjusted PAT (INR mn) 26,921 28,645 (6.0) 31,613 32,421 (2.5)
EPS ( INR) 111.9 119.1 (6.0) 131.4 134.8 (2.5)
FY12E FY13E
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8 Edelweiss Securities Limited
Metals and Mining Company Description
JSW, part of the USD 8 bn O.P. Jindal Group, was incorporated as Jindal Vijaynagar Steel
(JVSL). It began operations in 1999 with the commissioning of the first Corex-2000
module in India (third in the world after Posco in South Korea and Isicor in South Africa),
with a capacity to produce 0.8 mn tonnes of hot metal. In FY05, the company merged
group company JISCO (Jindal Iron and Steel Company), which had a strong presence in
downstream products such as CR and GP/GC products. In FY06, the company merged
Euro Ikon, Euro Coke, and JSW Power and was renamed JSW Steel, transforming into an
integrated steel manufacturer. The current steel capacity of JSW Steel is 7.8 mtpa, which
includes 6.8 mtpa capacity at Vijaynagar and 1 mtpa capacity at Salem that caters
exclusively to the long product segment.
Investment Theme
Global steel demand is showing definite signs of revival. Flat steel prices have increased
in the past 6 months, both globally and in India. JSW has expanded rapidly to emerge as
India’s second largest steel producer in terms of capacity and is adding 3mtpa more next
year. It continues to focus on the domestic market and increasing its penetration in
semi-rural and rural areas by opening retail outlets.
Key Risks
• Delays in completion of brownfield expansion
• Weakness in global steel demand leading to lower international prices
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Edelweiss Securities Limited 9
JSW Steel
Financial Statements (Consolidated)
Income statement (INR mn)
Year to March FY09 FY10 FY11E FY12E FY13E
Net revenue 159,348 189,572 236,345 379,259 408,909
Accretion to stock (3,609) (171) 0 0 0
Raw material costs 107,750 112,483 142,459 230,245 248,058
Employee expenses 5,186 4,795 5,346 7,570 8,141
Power and freight 8,038 10,475 13,040 20,645 4,344
SGA and other expenses 20,113 21,282 28,936 46,092 66,396
Total operating expenses 137,478 148,865 189,782 304,552 326,939
EBITDA 21,871 40,707 46,563 74,707 81,970
Depreciation and amortisation 9,878 12,987 15,258 20,675 22,974
EBIT 11,993 27,720 31,305 54,032 58,997
Interest expenses 11,556 11,080 9,946 17,255 18,989
Other income 2,717 5,360 2,055 3,850 7,854
Profit before tax 3,153 22,000 23,415 40,627 47,862
Provision for tax 726 6,467 7,535 13,425 15,909
Core profit 2,427 15,533 15,879 27,202 31,953
Profit after tax 2,427 15,533 15,879 27,202 31,953
Minority interest (205) (332) (149) (194) (177)
Share of profit of associates 117 111 147 258 296
Profit after minority interest 2,516 15,755 15,881 27,138 31,835
FCCB interest post-tax 804 774 789 217 221
Adjusted PAT 1,712 14,980 15,092 26,921 31,613
Basic shares outstanding (mn) 187 187 241 241 241
Basic EPS 10.4 81.3 64.0 114.0 133.9
Diluted shares (mn) 187 187 241 241 241
Diluted EPS 10.4 81.3 64.0 111.9 131.4
Dividend per share (INR) 1 10 10 10 10Dividend payout (%) 20.3 15.1 19.5 11.2 9.7
Tax rate (%) 23.0 29.4 32.2 33.0 33.2
Common size metrics- as % of net revenues
Year to March FY09 FY10 FY11E FY12E FY13E
Operating expenses 86.3 78.5 80.3 80.3 80.0
Depreciation 6.2 6.9 6.5 5.5 5.6
Interest expenditure 7.3 5.8 4.2 4.5 4.6
EBITDA margins 13.7 21.5 19.7 19.7 20.0
Net profit margins 1.5 8.2 6.7 7.2 7.8
Growth metrics (% )
Year to March FY09 FY10 FY11E FY12E FY13E
Revenues 27.9 19.0 24.7 60.5 7.8
EBITDA (39.0) 86.1 14.4 60.4 9.7
PBT (87.0) 597.7 6.4 73.5 17.8
Net profit (85.4) 539.9 2.2 71.3 17.5
EPS (87.6) 681.5 (21.3) 75.0 17.4
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10 Edelweiss Securities Limited
Metals and Mining Balance sheet (INR mn)
As on 31st March FY09 FY10 FY11E FY12E FY13E
Equity capital- Voting shares 2,481 2,481 3,016 3,016 3,016
Preference shares 2,889 2,790 7,109 7,109 7,109
Reserves & surplus 72,669 87,300 174,969 199,471 228,744
Shareholders funds 78,039 92,571 185,095 209,596 238,870
Secured loans 134,708 134,541 171,978 202,172 233,923
Unsecured loans 30,794 27,190 28,650 29,063 29,510
Borrowings 165,502 161,730 200,628 231,236 263,434
Minority interest 2,732 2,187 2,037 1,843 1,665
Deferred tax liability 14,213 19,650 19,650 19,650 19,650
Sources of funds 260,487 276,138 407,410 462,324 523,618
Gross block 223,889 267,921 392,651 467,651 480,942
Depreciation 40,798 53,393 95,040 115,716 138,689
Net block 183,092 214,528 297,611 351,936 342,253
CWIP 95,852 69,562 76,992 83,859 138,208
Total fixed assets 278,943 284,090 374,603 435,795 480,460
Investments 3,966 6,282 7,416 7,674 7,971
Deferred tax asset 1,445 2,802 6,950 6,950 6,950
Goodwill 7,831 8,992 11,709 11,709 11,709
Loans and advances 12,428 16,038 22,854 30,842 33,257
Inventories 29,246 28,667 47,128 66,199 73,910
Sundry debtors 3,991 6,964 11,405 15,993 17,214
Cash and equivalents 5,093 3,030 24,768 8,689 21,509
Other current assets 172 0 9,181 9,181 9,181
Total current assets 50,929 54,700 115,336 130,905 155,071
Sundry creditors and others 81,799 78,078 105,310 126,119 133,562
Provisions 829 2,649 3,305 4,599 4,990
Total CL & provisions 82,628 80,727 108,614 130,718 138,552
Net current assets (31,699) (26,027) 6,722 187 16,519
Miscellaneous expenditure 0 0 9 9 9Uses of funds 260,487 276,138 407,410 462,324 523,618
Book value per share (BV) (INR) 402 480 740 842 963
Free cash flow metrics (INR mn)
Year to March FY09 FY10 FY11E FY12E FY13E
Net profit 2,516 15,755 15,881 27,138 31,835
Depreciation 9,878 12,987 15,258 20,675 22,974
Others 5,369 10,165 (11,277) 27,743 6,216
Gross cash flow 17,762 38,906 19,862 75,556 61,025
Less: Changes in W. C. 28,161 (5,293) 22,934 (30,477) 2,922
Operating cash flow 45,924 33,613 42,796 45,079 63,947
Less: Capex (59,735) (27,537) (73,427) (90,860) (80,058)
Free cash flow (13,812) 6,076 (30,631) (45,781) (16,111)
Cash flow statement
Year to March FY09 FY10 FY11E FY12E FY13E
Operating cash flow 45,924 33,613 42,796 45,079 63,947
Financing cash flow 12,363 (5,762) 69,970 11,491 11,440
Investing cash flow (58,409) (29,323) (95,397) (75,860) (65,058)
Net cash flow (122) (1,471) 17,370 (19,290) 10,329
Capex (59,735) (27,537) (73,427) (90,860) (80,058)
Dividends paid (3,404) (570) (3,153) (3,153) (3,153)
Share issuance/(buyback) 0 0 75,182 0 0
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Edelweiss Securities Limited
11
JSW Steel
Ratios
Year to March FY09 FY10 FY11E FY12E FY13E
ROAE (%) 3.6 19.4 12.1 14.5 14.9
ROACE (%) 5.1 10.5 9.3 12.6 12.2
Inventory (days) 89 94 97 90 103
Debtors (days) 11 11 14 13 15
Payable (days) 218 260 235 183 191
Cash conversion cycle (days) (118) (155) (124) (80) (73)
Debt/EBITDA 7.6 4.0 4.3 3.1 3.2
Current ratio 0.6 0.7 1.1 1.0 1.1
Debt/ Equity 2.1 1.7 1.1 1.1 1.1
Adjusted debt/Equity 2.1 1.7 1.1 1.1 1.1
Turnover
Year to March FY09 FY10 FY11E FY12E FY13E
Fixed assets turnover (x) 1.0 1.0 0.9 1.2 1.2
Total asset turnover (x) 0.7 0.7 0.7 0.9 0.8
Equity turnover (x) 2.0 2.2 1.7 1.9 1.8
Du pont analysis
Year to March FY09 FY10 FY11E FY12E FY13E
NP margin (%) 1.7 8.4 6.8 7.3 7.9
Total assets turnover 0.7 0.7 0.7 0.9 0.8
Leverage multiplier 3.1 3.3 2.6 2.3 2.3
ROAE (%) 3.6 19.4 12.1 14.5 14.9
Valuation parameters
Year to March FY09 FY10 FY11E FY12E FY13E
Diluted EPS (INR) 10.4 81.3 64.0 111.9 131.4
Y-o-Y growth (%) (87.6) 681.5 (21.3) 75.0 17.4
CEPS (INR) 67.5 154.8 130.7 200.9 230.3Diluted P/E (x) 94.2 12.0 15.3 8.8 7.5
Price/BV(x) 2.4 2.0 1.3 1.2 1.0
Market cap/Sales (x) 1.1 1.0 1.0 0.6 0.6
EV/Sales (x) 2.2 1.8 1.7 1.2 1.2
EV/EBITDA (x) 15.8 8.4 8.9 6.1 5.8
Dividend yield (%) 0.1 1.0 1.0 1.0 1.0
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12 Edelweiss Securities Limited
Metals and Mining
Company Absolute
reco
Relative
reco
Relative
risk
Company Absolute
reco
Relative
reco
Relative
Risk
Bhushan Steel BUY SO H Coal India HOLD SU M
Hindalco Industries BUY SO M Hindustan Zinc BUY SO L
Jindal Steel & Power HOLD SP M JSW Steel BUY SO M
National Aluminium Company REDUCE SU M Prakash Industries BUY SO M
Sesa Goa REDUCE SU M Steel Authority of India HOLD SU L
Sterlite Industries (India) BUY SP M Tata Steel BUY SO M
Usha Martin BUY SO M
RATING & INTERPRETATION
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING
Ratings CriteriaSector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
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JSW Steel
Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Edelweiss Securities Limited, 14th Floor, Express Towers, Nariman Point, Mumbai – 400 021. Board: (91-22) 2286 4400, Email: research@edelcap.com
Vikas Khemani Head Institutional Equities vikas.khemani@edelcap.com +91 22 2286 4206
Nischal Maheshwari Head Research nischal.maheshwari@edelcap.com +91 22 6623 3411
Cove r age g r oup ( s ) o f s t ocks by p r im a r y ana lys t ( s ) : Meta ls and M in ing
Bhushan Steel, Coal India, Hindalco Industries, Hindustan Zinc, Jindal Steel & Power, JSW Steel, National Aluminium Company, PrakashIndustries, Steel Authority of India, Sesa Goa, Sterlite Industries (India), Tata Steel, Usha Martin
Distribution of Ratings / Market Cap
Edelweiss Research Coverage Universe
Rating Distribution* 118 51 17 189* 3 stocks under review
Market Cap (INR) 111 61 17
> 50bn Between 10bn and 50 bn < 10bn
Date Company Title Price (INR) Recos
Buy Hold Reduce Total
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Recent Research
05-Apr-11 Sesa Goa Export ban removal:Positive, but factored in;EdelFlash
315 Reduce
01-Apr-11 Hindalco
Industries
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JSW Steel EW Indices
Buy Buy
Buy
BuyBuy
600800
1,000
1,200
1,400
A p r - 1 0
M a y - 1 0
J u n - 1 0
J u l - 1 0
A u g - 1 0
S e p - 1 0
O c t - 1 0
N o v - 1 0
D e c - 1 0
J a n - 1 1
F e b - 1 1
M a r - 1 1
A p r - 1 1
( I N R )
400
650
900
1,150
1,400
7-Jan-10 7-Jul-10 7-Jan-11
J S W Steel Ltd.
EW Metals and Mining Index
Nifty
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