Emkay Global Financial's report on JSW Steel
Despite paying Rs30bn for royalty and premium for the captive mines, JSW reported its highest EBITDA and EBITDA/t in 11 quarters. Net sales/EBITDA beat our estimates by 7%/14%. Q4 will be better with the full impact of price hikes coming through. The impact of price hikes taken in Dec’20 will be reflected in Q4, while the impact of higher coking coal prices (built into our estimates already) will be visible only partly in Q4. JSW will report meaningful volume growth in FY22 after five years and this will mark a new wave of volume growth annually for next several years. It will also commission several downstream projects in the next six months, along with 5mt Dolvi expansion, which should result in a structural uplift of EBITDA/t across cycles. The disadvantage of high-cost captive mines will take time to rationalize as logistics improve.
Outlook
We raise FY21/22E EBITDA by 31%/31%, driven largely by 9%/20% ASP upgrade. With an upswing in the steel sector, volume growth comes at the right time. Upgrade to Buy with a TP of Rs 432 (from Rs 256).
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