JSW Steel Q2 Review - Results Below Estimates; Strong Performance By Subsidiaries: Systematix
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JSW Steel Ltd.'s Q2 FY22 consolidated Ebitda of Rs 104.2 billion (+136% YoY, +1.4% QoQ) was 7% below our estimates. Standalone business reported lower-than-expected steel sales volumes and lower margins, though partially offset by strong performance by subsidiaries.
Raw material costs increased 68% YoY ($193/t) and 12% QoQ ($51/t). As a result, Ebitda margins declined to $309/t (vs. highest-ever Ebitda margin of $359/t in the previous quarter since Q2 FY09).
JSW increased its stake to 83% in Bhushan Power (BPSL), which reported Q2 FY22 Ebitda of Rs 20 billion. BPSL’s acquisition cost at Rs 190 billion appears significantly value accretive at 2.4x EV/Ebitda based on annualised Q2 FY22 EBITDA; it is also increasing its capacity to 5mtpa at a marginal cost of Rs 35 billion by FY24.
The 5 mtpa expansion at Dolvi in Oct. 2021, which comprises one of India’s largest blast furnaces, would have a lower cost structure. We raise our FY22/23E Ebitda by 8%/22% largely driven by the consolidation of BPSL even as we raise our raw material cost assumptions.
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