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JSW Steel – Results Cracking – SELL

May 9, 2009

JSW Steel Sales rose 5% yoy to 1.06m tonnes. FY09 adj PAT fell 44% yoy to Rs9.3bn. JSTL reported standalone PAT of Rs492m. Adjusting for the FCCB buyback & forex gains, net loss for 4Q was Rs258m vs profit of Rs4.4bn in 4QFY08.

4Q EBITDA/t fell to $67 vs $188 last year and $122 in 3QFY09. Even though JSTL had contracted coking coal at $175/t for most of its 4Q off-take (vs $305/t for FY09), the quarter was impacted by significant high-cost opening inventory. ~8% of coking coal contracted at $305/t in FY09 is yet to be lifted and JSTL is in negotiations to spread it over the next 2-3 yrs.

The US plate/pipe mills are operating at 10-15% utilization and reported a 4Q loss of $61m and a $37m loss for FY09.

Analysts differ from the the guidance for FY2010 for salable steel sales volumes of 6.1 mn tons compared to 3.43 mn in FY2009 is very aggressive given the fact the new 2.8 mn ton blast furnace has been commissioned as recently as April 2009.

Recommendations:
Citi expects JSW to report an EPS of Rs 43 for FY10 while Merill expects it to be Rs 37. Kotak has a still more conservative EPS estimate of mere Rs 25 for FY10. We expect it to be around Rs 37 with most of the demand picking up in the latter half of FY10.

The stock has risen a bit too fast in the recent rally and investors can book profits on the same.

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