28 May 2014
4QFY14 Results Update | Sector:
Metals
JSW Steel
BSE SENSEX
24,550
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
7,318
JSTL IN
241.7
1,295/452
2/13/48
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr.(%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
EV/EBITDA
( )
2014
512.2
91.7
3.5
34.4
-30.8
10.4
10.3
35.7
1.4
7.8
2015E 2016E
545.4
104.7
27.7
113.4
229.7
11.8
10.6
10.8
1.2
6.8
568.5
107.9
27.7
113.3
-0.1
10.7
10.4
10.8
1.1
6.4
CMP: INR1,228
TP: INR1,473
Upgrade to Buy
Strong operating performance; Upgrade to Buy
JSW Steel (JSTL)’s consolidated 4QFY14 adjusted PAT increased 9% QoQ to
INR2.5b on stronger performance of standalone operations. Reported PAT
increased 2% QoQ to INR4.6b. The losses after tax at overseas subsidiaries
increased by INR1.5b QoQ to INR3.5b on higher provisioning.
Strong performance of standalone:
EBITDA increased 8% QoQ to INR25b (vs. est.
of INR23.6b) due to higher realization and stable cost of production. EBITDA per
ton increased 8% QoQ to INR8,052 on 4% higher average realization.
New low cost projects announced:
JSTL announced capex of INR40b for
debottlenecking of capacities at Dolvi and Vijaynagar by 1.7mtpa and 2mtpa
respectively. The projects will be completed by 1HFY16. Post expansion JSTL’s
capacity will rise from 14.3mtpa to 18mtpa. The new capacities will come at very
attractive specific capex of INR20,000/ ton.
M.Cap. (INR b) / (USD b) 296.7/5.0
Revising EBITDA estimates 15-20% upwards; Upgrade to BUY
We are upgrading EBITDA per ton estimates by 12-17% on stronger operating
performance of 4QFY14 and expected further reduction in operating costs. We are
raising volumes by 3% to 12.4m ton for FY15 on new guidance.
New low cost projects have improved the volume growth visibility for JSW Steel.
Over next 1 years, Karnataka government will put in place mechanism for
auctioning of category “C” mines. JSTL will be key beneficiary of the auction. As a
result, we expect JSTL to keep getting re-rated.
We are raising target price to INR1473/share (upside of 20%) and upgrading the
stock to
BUY.
Stock is trading at EV/EBITDA of 6.8xFY15.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Investors are advised to refer through disclosures made at the end of the Research Report.

JSW Steel
Consolidated: Stronger S/A performance offset higher overseas losses
Consolidated adjusted PAT increased 9% QoQ to INR2.5b on stronger
performance of standalone operations. Reported PAT increased 2% QoQ to
INR4.6b. The losses after tax at overseas subsidiaries increased by INR1.5b QoQ
to INR3.5b on higher provisioning.
All subsidiaries together contributed INR323m to EBITDA (- 70% QoQ. JSW
coated reported improved operating performance.
Tax rate was higher at 49.9% due to consolidation of loss making subsidiaries.
Consolidated net debt (including acceptances) was flat during 2HFY14 at
INR422b. Acceptances declined by USD473m to USD1.4b during same period.
Standalone: Strong results on margin expansion
Long product sales
increased 16% QoQ
Net sales increased 4% QoQ to INR125b driven by higher steel realization. Net
sales realization increased 4% QoQ to INR40,288/t due to price hikes. Share of
exports in revenue declined 600bps to 20%.
Sale volumes were flat QoQ at 3.1m tons, while crude steel production declined
1% QoQ to 3.1mt. Export sales tonnage was ~876kt (down 13% QoQ).
Inventories came down by 100kt during the quarter.
Flat steel sales volume decreased 3% QoQ to 2.47m ton, while long steel sales
volume increased 16% QoQ to 0.5m ton.
EBITDA increased 8% QoQ to INR25b (vs. est. of INR23.6b) due to higher
realization and stable cost of production. EBITDA per ton increased 8% QoQ to
INR8,052. Average raw material cost was stable despite increase in iron ore
prices. Iron ore cost increased by INR490/t QoQ to INR3,820/t.
Adjusted standalone PAT increased 24% QoQ to INR8b.
E: MOSL Estimates; Note: JSW Ispat is excluded until 4QFY13
28 May 2014
2

JSW Steel
Subsidiaries: performance remains a drag
JSW coated (100% subs.) sold 0.44m tons of value added products and reported
EBITDA of INR940m (up 19% QoQ). EBITDA per ton increased 14% QoQ to
INR2136/ton.
EBITDA contribution from other subsidiaries was loss of INR617m against gain of
INR272m in 3QFY14.
Chile iron ore operations reported USD1.3m EBITDA (USD5.2m in 3QFY14) on
sale of 149kt iron ore. CoP was USD103/t.
US plate and pipe mill utilization remains low yet improved 5 percentage points
to 44%, while EBITDA loss was USD4m.
Quarterly Performance (Subsidiaries)
Y/E March
1Q
Net Sales
EBITDA
JSW coated
US Mills
Chile iron ore
US coal
PAT
-2,821
-2,508
-2,352
-2,413
351
460
160
-4
-41
44
25
359
8,723
1,357
2Q
6,428
61
FY13
3Q
5,955
175
4Q
6,073
359
1Q
9,125
1,303
790
34
48
-20
-2,476
2Q
14,982
1,141
780
-127
332
-21
-4,266
FY14
3Q
16,583
1,062
790
-107
324
55
-4,125
4Q
18,530
323
940
-248
82
-450
-5,435
-10,094 -16,303
Source: Company, MOSL
27,179
1,951
59,220
3,829
FY13
FY14E
Announced new phase of capacity expansion at low specific capex
During 4QFY14, JSW Steel has commissioned number of projects i.e. 2.3mtpa
CRM phase-2, 4mtpa Pellet plant and 1mtpa coke oven at Dolvi, and new 6 Hi
CRM at Kalmeshwar.
1.5mtpa Steel melt shop-3 has been commissioned in the month of April, 2014.
Bar rod mill -2 will be commissioned during 1HFY15.
JSTL announced capex of INR40b for debottlenecking of capacities at Dolvi and
Vijaynagar by 1.7mtpa and 2mtpa respectively. The projects will be completed
by 1HFY16. Post expansion JSW Steel’s capacity will rise from 14.3mtpa to
18mtpa. The new capacities will come at very attractive specific capex of
INR20,000/ ton.
Another INR40b will be spent on sustenance (INR15b), Jharkhand mines
(INR7.5b), US coal mines (USD125m), Chile iron ore beneficiation plant
(USD60m).
Including left over INR40b capex towards outstanding CRM-II projects, a total of
INR120b will be spent over FY15-16 on various projects.
JSTL has revised upwards FY15 CapEx to INR75b (from INR55b) to undertake
new projects.
28 May 2014
3

JSW Steel
Raising EBITDA by 15-20%. Upgrade to BUY
EBITDA per ton estimates
raised by 12-17%
Volumes estimate raised by
3%
Indian steel demand to start
accelerating
New low cost projects to
improve the return ratios.
Upgrade to BUY
Despite challenges in iron ore sourcing and lackluster domestic steel demand,
JSTL operating performance continues to surprise us positively. The operating
performance of Dolvi unit is now nearly matching the performance of
Vijaynagar.
EBITDA per ton of standalone business has expanded to robust INR8000/t. The
margins are likely to expand further on benefit of higher share of value added
products, step up in long product production, and cost benefits on account of
lower coking coal prices, and operating efficiencies from new pellet and coke
ovens at Dolvi. We are upgrading estimates by 12% and 17% to INR8052/t and
INR7960/t for FY15 and FY16 respectively.
We are also upgrading the volume estimates by 3% to 12.4m tons and 12.9m
tons for FY15 and FY16. As a result, standalone EBITDA is upgraded by 16% and
21% to INR99.6b and INR102.7b respectively. Consolidated EBITDA is raised by
15% and 20% respectively.
Although capex guidance has been raised from INR55b to INR75b, the net debt
will start declining in FY15 and FY16 on improved operating cash flows.
We believe that Indian steel demand growth has hit the bottom with mere 0.6%
growth in FY14. We expect steel demand growth to accelerate to 4% and 6% in
FY15 and FY16.
New low cost projects have improved the volume growth visibility for JSW Steel.
Over next 1 years, Karnataka government will put in place mechanism for
auctioning of category “C” mines. JSTL will be key beneficiary of the auction. As
a result, we expect JSTL to keep getting re-rated.
We are raising target price to INR1473/share (upside of 20%) and upgrading the
stock to
BUY.
Stock is trading at EV/EBITDA of 6.8xFY15.
JSW STEEL: Target price calculations
Year
A. S/A volumes
B. EBITDA per ton
C. S/A EBITDA (AxB)
D. Sub. EBITDA
E. Cons. EBITDA (C+D)
F. Target EV/EBITDA (x)
G. Target EV (FxG)
less: Net Debt (Rs m)
add: CWIP
Equity value
No. of shares
Target price
2012
7.8
7,197
56,238
4,781
61,019
2013
8.9
7,105
63,088
1,951
65,039
2014
11.9
7,405
87,826
3,829
91,655
261,397
35,703
292,123
65,972
421,688
90,972
2015E
12.4
8,040
99,692
5,058
104,750
6.5
680,873
410,744
85,972
356,101
242
1473
2016E
12.9
7,960
102,681
5,219
107,900
6.5
701,348
394,241
70,972
378,079
242
1564
28 May 2014
4

JSW Steel
JSW Steel: an investment profile
Company description
JSTL demonstrated excellent project execution skills
over the past decade, growing its annual capacity 6x to
10m tons through Brownfield expansions at Vijaynagar.
With the acquisition of Ispat Industries and Salem Steel,
it controls annual capacity of 14.3mtpa. Its main
production facilities are located in proximity to rich iron
ore reserves in Karnataka. It has investments in iron ore
mining in Chile. Its other overseas investments include
plate and pipe mill operations and coal mines in the US.
Recent developments
India’s most sophisticated 2.3mtpa CRM-II complex
was commissioned on 25
th
April. This mill is
equipped with latest technology to produce
continuously annealed CR upto 980 MPA (UTS) for
auto sector
Valuation and view
Stock is trading at EV/EBITDA of 6.8xFY15. Upgrade
to
BUY
on higher volumes and better margins
Key investment arguments
JSTL has the lowest conversion cost due to
operational efficiencies. Its strategic location near
the iron ore rich Bellary-Hospet belt helps it to keep
iron ore purchase costs low. However, the
restricted iron ore mining in Bellary and Odisha has
posed major challenges for company.
New CRM-II at Vijaynagar will enrich product mix.
Pellet and Coke oven facilities will bring down the
cost of production at Dolvi unit
Sector outlook
We believe that Indian steel demand growth has
hit bottom in FY14. We expect Indian steel
demand growth to accelerate to 4% in FY15 and
6% in FY16.
The conversion spreads for steel mills are
expanding on global demand (ex-China) growth
and oversupply of iron ore and coking coal.
Key investment risks
Iron ore availability and costing is key risk to
margins.
Comparative valuations
P/E (x)
FY15E
FY16E
P/BV (x)
FY15E
FY16E
EV/Sales (x)
FY15E
FY16E
EV/EBITDA (x) FY15E
FY16E
JSW Steel
10.8
10.8
1.2
1.1
1.3
1.2
6.8
6.4
SAIL
12.8
10.3
0.8
0.8
1.3
1.3
9.4
7.7
TATA STEEL
8.8
6.5
1.5
1.2
0.8
0.8
6.3
5.6
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY15
FY16
113.4
113.3
Consensus
Forecast
97.7
110.0
Variation
(%)
16.0
3.0
Target price and recommendation
Current
Price (INR)
1,228
Target
Price (INR)
1,473
Upside
(%)
20.0
Reco.
BUY
Shareholding pattern (%)
Promoter
Domestic Inst
Foreign
Others
Mar-14
39.0
3.6
38.9
18.5
Dec-13
37.8
4.4
38.4
19.4
Mar-13
38.6
4.5
40.8
16.1
Stock performance (1-year)
28 May 2014
5

JSW Steel
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2013
382.1
11.2
65.0
17.0
22.4
42.7
19.7
0.7
-4.3
19.4
8.5
43.6
10.9
15.2
-34.3
-2.0
11.1
2014
512.2
34.0
91.7
17.9
31.8
59.8
30.5
0.9
-17.1
13.1
9.2
70.3
3.9
21.0
37.9
-0.4
8.3
(INR Billion)
2015E
545.4
6.5
104.7
19.2
34.3
70.4
31.3
1.3
0.0
40.4
12.2
30.1
28.2
28.2
34.4
-0.5
27.4
2016E
568.5
4.2
107.9
19.0
36.0
71.9
33.0
1.5
0.0
40.4
12.2
30.2
28.2
28.2
-0.1
-0.5
27.4
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2013
49.7
148.7
764.8
10.0
20.5
24.7
8.3
1.6
1.5
8.7
0.8
7.7
8.4
0.8
20.1
52.5
35.5
1.8
2014
34.4
164.9
907.5
11.0
37.4
35.7
7.4
1.4
1.4
7.8
0.9
10.4
10.3
0.9
16.3
58.1
30.8
2.0
2015E
113.4
254.2
1,006.9
11.0
12.4
10.8
4.8
1.2
1.3
6.8
0.9
11.8
10.6
0.8
15.0
60.0
55.7
1.8
2016E
113.3
260.9
1,106.2
11.0
12.4
10.8
4.7
1.1
1.2
6.4
0.9
10.7
10.4
0.8
15.0
60.0
55.5
1.6
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2013
2.2
168.4
170.6
310.1
32.7
515.4
458.7
111.5
347.2
66.0
16.1
120.6
55.0
21.1
18.0
26.6
34.3
30.9
3.5
86.2
515.4
2014
2.4
217.0
219.4
429.0
21.2
671.3
691.2
217.7
473.5
91.0
5.9
206.0
81.6
22.9
7.3
94.2
105.1
35.4
69.7
100.9
671.3
(INR Billion)
2015E
2016E
2.4
2.4
241.0
265.0
243.4
267.4
429.0
429.0
25.3
29.5
698.7
726.2
771.2
831.2
252.0
288.0
519.2
543.2
86.0
71.0
5.9
5.9
224.5
245.8
89.7
93.5
22.4
23.4
18.3
34.8
94.2
94.2
136.9
139.8
67.2
70.1
69.7
69.7
87.6
106.0
698.7
726.2
E: MOSL Estimates
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
23.0
22.4
-0.7
19.7
-5.1
5.9
57.7
-56.3
0.8
1.1
-54.5
0.0
9.5
-15.2
-2.3
-7.2
-3.9
22.5
18.6
2014
29.4
31.8
-0.9
30.5
-2.6
-44.2
44.0
-56.9
0.0
0.9
-56.0
0.0
34.1
-30.5
-3.1
1.4
-10.7
18.0
7.3
(INR Billion)
2015E
39.1
34.3
-1.3
31.3
-8.1
24.2
118.0
-75.0
0.0
1.3
-73.7
0.0
0.0
-31.3
-3.4
-33.4
10.9
7.3
18.3
2016E
39.0
36.0
-1.5
33.0
-8.1
-1.9
95.0
-45.0
0.0
1.5
-43.5
0.0
0.0
-33.0
-3.4
-34.9
16.5
18.3
34.8
28 May 2014
6

JSW Steel
NOTES
28 May 2014
7

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Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
JSW STEEL LTD
No
No
No
No
JSW Steel
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28 May 2014
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8