JSTL’s Q4 EBITDA rose 42% q-o-q (+184% y-o-y), 13% above JEFe, led by superior-than-anticipated realisations. Ebitda/t expanded 37% q-o-q to Rs 19.8K. Asian steel costs stay robust in spite of some current correction Indian spot HRC value is 20% above Q4 typical and nonetheless at a discount to imports. We anticipate JSTL’s margins to rise additional in Jun-Q but issue in a normalisation in the remainder of FY22. We raise FY22-23e EPS by 44-68% and retain Buy with a revised PT of Rs 820.
Stellar Q4: JSTL’s Q4 Ebitda and net profit rose 42-57% q-o-q (each ~3x y-o-y), 12-13% above JEFe. Standalone sales volumes rose 4% q-o-q even though realisations enhanced Rs 8.4K/t q-o-q (+18%) led by greater steel costs.
Raw material charges have been up q-o-q due to greater iron ore costs on the other hand, Ebitda/t nonetheless expanded 37% q-o-q to Rs 19.8K —a decade higher. Combined efficiency of subsidiaries also enhanced q-o-q. Net debt went up a slight 2% q-o-q due to BPSL acquisition. In FY21, JSTL’s Ebitda grew 68% y-o-y even though net profit was ~3x y-o-y.
Steel costs robust: China domestic steel costs are down ~15% from mid-May peak but are nonetheless up 27% CYTD at $887/t. The ongoing Covid wave is affecting Indian steel demand in close to term but JSTL expects exports to make up for any shortfall.
Further margin expansion in Q1: JSTL’s iron ore expense ought to rise additional in coming quarters on greater marketplace costs and increasing share of captive mines. However, Indian HRC (flat) steel value has risen 20% from Q4 typical of Rs 55.5K/t to Rs 66.5K/t. Higher steel costs ought to more than offset the input expense pressures for JSTL driving additional margin expansion in Q1FY22. We assume a meaningful moderation in steel costs and margins in balance FY22 although. We issue in HRC costs at Rs 57K/54K for FY22/FY23 — 14%/19% under spot. We estimate JSTL’s Ebitda/t at Rs 23.4K, Rs 18.1K and Rs 17.6K in Q1FY22, H2FY22 and FY23 respectively.
Next phase of development capex: JSTL announced an aggressive capex program with total commit of Rs 475 bn more than the next 3 years. This contains 5mtpa expansion at Vijaynagar at expense of Rs 150 bn, implying an desirable ~$400/t of capacity. This, along with the currently-announced 1mtpa expansion at Vijaynagar, will take JSTL total steel capacity to 33mtpa by FY25.
We think the capex plans can be largely funded out of operating money flows and these capacities will come at an opportune time when India would probably turn net importer of steel.
Upgrade estimates retain Buy: The Board has authorized fund-raising of up to Rs 190 bn. We upgrade FY22-23e Ebitda by 26-38% and EPS by 44-68%. We retain Buy with Rs 820 PT, based on 7.0x FY23e EV/Ebitda. We choose TATA more than JSTL.