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JSW Metal’s (JSTL’s) Q4FY22 Ebitda was up 8.8% y-o-y to Rs 91.8 bn, beating Road’s and our estimates. Key factors: i) Home EBITDA/t slid 32% y-o-y to Rs 13,517. ii) Abroad subsidiaries (besides Lucchini) carried out comparatively properly. iii) Web debt (excluding Acceptances) decreased Rs 97 bn q-o-q to Rs 566 bn. iv) Working capital build-up owing to increased stock.
Going forward, whereas we anticipate JSTL to attain its daunting quantity steering of twenty-two.6mt, excessive capex depth is a trigger for concern within the present surroundings of declining metal costs. Preserve ‘Scale back’ with an unchanged TP of Rs 471 valuing the inventory at 5.6x Q2FY24E Ebitda.
Beats estimates; difficult outlook: JSTL’s Q4FY22 Ebitda of Rs 91.8 bn is forward of our and Road’s estimates. Key factors: i) Blended realisation of standalone enterprise was down Rs 3,400/t, mirroring home HRC worth decline and decrease export costs. ii) Coking coal value was up $52/t, impacting profitability. iii) Highest-ever standalone gross sales quantity of 5.11mt as Dolvi ramped up. iv) Exports decreased to a mere 21% of general combine as home demand elevated 7.4% q-o-q. v) US Plate/Pipe mill posted a powerful efficiency. vi) Consolidated gross debt dipped Rs 37 bn as the corporate pay as you go Rs 73.8 bn of debt. For Q1FY23E, administration expects coking coal value to rise by $125/t. In our view, this may result in important strain on profitability, regardless of increased quantity from standalone operations.
Excessive capex depth amid falling spreads a key difficulty: We’re constructive on JSTL coming near its aggressive gross sales quantity steering of 24mt (India: 23.3mt). Nevertheless, we imagine standalone Ebitda/t would possibly shrink to Rs 11,500–13,000/t, even contemplating moderating coking coal and iron ore costs by FY25E. This coupled with deliberate capex of Rs 200 bn in FY23E and Rs 191 bn in FY24E implies debt is more likely to stay elevated. Whereas administration has indicated that capex is perhaps pruned in case spreads erode materially, we see JSTL extra precariously positioned than its friends.
Outlook: Excessive capex depth – Whereas we’re optimistic about JSTL ramping up quantity, we’re involved about its excessive capex depth in instances of declining metal costs. That is exacerbated by the overhang created by the latest regulatory blow. We preserve ‘REDUCE/SU’ on JSTL with an unchanged TP of Rs 471/share.
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