COMPANY UPDATE
JSW STEEL On a sustainable growth path
India Equity Research| Metals and Mining
COMPANYNAME Investors might wonder what makes us positive on JSW Steel (JSTL) EDELWEISS 4D RATINGS despite the stock having come off 25% over the past three months and Absolute Rating BUY commanding a richer valuation than peers. Our recent visit to its Rating Relative to Sector Outperform Vijayanagar plant reaffirms our belief in the value the stock offers given: Risk Rating Relative to Sector Medium 1) economies of scale are driving fixed-cost efficiencies; 2) the upcoming Sector Relative to Market Underweight 8mtpa pellet plant would improve the feed mix to blast furnace; 3) enhanced presence in downstream products; and 4) option of 5mtpa plant expansion. All in all, we expect JSTL’s captive iron ore mines, MARKET DATA (R: JSTL.BO, B: JSTL IN) initiatives on feed rates and logistics cost, and downstream products to CMP : INR 298 help it keep EBITDA/t in excess of INR11,000. We maintain FY19E/FY20E Target Price : INR 433 52-week range (INR) : 428 / 238 EBITDA and TP at INR433. The stock trades at 5.0x FY20E EBITDA. Share in issue (mn) : 2,417.2 M cap (INR bn/USD mn) : 720 / 7,276 Vijayanagar’s operating model akin to cost-efficient Russian players Avg. Daily Vol.BSE/NSE(‘000) : 5,482.2 JSTL’s 12mtpa Vijayanagar plant is modelled on operating a lower number of high-
capacity equipment at full efficiency. Thus, the plant’s fixed cost/tonne is lower than SHARE HOLDING PATTERN (%) domestic peers even though it does not have a captive raw material base. Current Q1FY19 Q4FY18 Management is taking initiatives on fuel rate and enhancing iron ore quality—the latter Promoters * 42.3 41.7 41.7 would further reduce raw material cost. We find similarities between JSTL’s operating MF's, FI's & BK’s 17.4 18.4 18.3 model and cost-efficient Russian plants run by MMK, NLMK, Severstal, etc. FII's 19.8 19.9 19.9
Others 20.5 20.0 20.1 Projects at Vijayanagar on track * Promoters pledged shares : 15.5 Expansion projects at Vijayanagar are on track with the foundation work in progress at (% of share in issue)
various sites. We found the key equipment being procured and ready for installation. PRICE PERFORMANCE (%) Both crude steel capacity expansion (1mtpa) and CRM-1 expansion (1.8mtpa) are expected to be completed by December 2019. On the cost front, commissioning of a EW Metals Stock Nifty and Mining pipe conveyor in Q4FY19 is expected to yield gains of up to INR300/t. Index
Outlook and valuation: Becoming bigger and better; maintain ‘BUY’ 1 month (14.4) 2.5 (8.4) 3 months (25.4) (5.1) (6.8) We remain upbeat on JSTL based on: 1) its fixed-cost advantage due to economies of 12 months 22.2 5.9 4.2 scale; and 2) the progress on value-additive projects at Vijayanagar. By valuation, JSTL
is trading at premium to peers. Maintain ‘BUY/SO’ with a TP of INR433 (exit multiple- 6.7x FY20E EBITDA).
Financials (INR mn)
Year to March FY17 FY18 FY19E FY20E Net revenue 555,431 702,250 980,000 1,152,263 EBITDA 121,127 147,940 208,027 230,179 Amit A Dixit Adjusted Profit 34,851 64,246 95,246 107,221 +91 22 6620 3160 [email protected] Diluted equity shares (mn) 2,417 2,417 2,417 2,417 Adjusted diluted EPS (INR) 14.4 26.6 39.4 44.4 Meera Midha EPS Growth (%) (815.3) 84.3 48.3 12.6 +91 22 4088 5804 [email protected] Diluted P/E (x) 20.7 11.2 7.6 6.7 EV/EBITDA (x) 9.6 7.6 5.4 5.0
ROAE (%) 16.8 25.3 30.3 27.0 December 13, 2018
Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL
Metals and Mining
Economies of scale reminiscient of cost-efficient Russian players Our visit to JSTL’s Vijayanagar plant reinforced our positive view on the stock as: 1) it has significant economies of scale owing to a few large capacity equipment; 2) value added & cost reduction initiatives will further enhance efficiencies; and 3) it entails expansion potential.
Economies of scale foster cost efficiency The Vijayanagar plant with 12mtpa capacity is well laid out with steelmaking facilities on one side of the road and ironmaking/upstream capability on the other. On the logistics front, the plant is well connected by rail while transportation of hot metal for steelmaking takes place through torpedoes. Similar to large Russian plants, the Vijayanagar plant has only a few large capacity equipment that are run at full capacity. This eliminates the need for multiple control points and optimises raw material cost once the facilities are stabilised, and thus results in lower fixed cost. Key facilities include:
1. four sinter plants with combined capacity of 12.95mtpa;
2. two pellet plants with combined capacity of 9.2mtpa (another plant of 8mtpa capacity is being commissioned); and
3. four blast furnaces with combined capacity of 10.4mtpa with Blast furnace 3 and 4 operating at 3.5mtpa each.
The layout of the current facilities is illustrated in Annexure 1.
Mitigation of iron ore grade inconsistency a priority Unlike other large domestic plants, JSTL does not have raw material integration; hence management’s key priority is to optimise the feed mix. Currently, the feed mix comprises 80–85% prepared burden (sinter: 60–65%; pellet: 20–25%) and 15–20% lump ore. Owing to the lower grade of locally available ore and inconsistencies in sourcing/grade, the company has had a higher fuel rate than peers. However, the upcoming pellet plant is expected to improve the pellet mix in the burden in line with other efficient peers.
On the PCI front, the company is targeting an increase from 150kg/tonne in FY18 to 170kg/tonne in FY19.
In our view, as a result of the initiatives taken on the iron ore sourcing front and blending of coal with better grades, fuel rate has decreased from 530kg/tonne in FY18 to 520kg/tonne currently. In blast furnace, JSTL utilises 60–65% of premium hard coking coal (higher than peers) and 30–35% of semi-soft coking coal, and even non-coking coal. Greater use of premium hard coking coal is mainly necessitated due to inconsistent (and lower) grades of iron ore.
Going ahead, we expect the iron ore sourcing mix to be more consistent due to: 1) ramp-up of captive iron ore mines accounting for 25% of iron ore requirement of the Vijayanagar plant; and 2) commissioning of the 8mtpa pellet plant.
2 Edelweiss Securities Limited JSW Steel
Corex – Aids power generation despite high fuel rate
JSTL started its steelmaking journey by utilising the corex technology (then revolutionary). COREX stands for Coal Reduction However, corex had inherent limitations in: 1) scalability– modules of 2,000tpd are possible; and 2) lower grade of domestic coal makes it imperative to blend coking coal that makes corex less attractive.
Corex-based plants have seen only limited success with just five installations worldwide: two at JSW Steel, another two at Essar Steel and one at Baosteel (3,000tpd). JSTL did not adopt the technology for future expansion due to its inherent limitation in scalability given the company’s aspirations for expansion and lack of availability of optimal coal quality in the domestic market. For instance, against an average fuel rate of 550kg/tonne of hot metal in blast furnace (coke: 350kg/t; PCI: 200kg/t), the one for corex is almost 1,000kg/t (thermal coal: 800kg/t; coke: 200kg/t). The use of coke is necessitated due to higher ash content of domestic coal. This renders the cost of operations of a corex plant almost INR3,000/t (10%) higher than conventional blast furnace. On the maintenance cost front as well, blast furnace is more efficient than corex.
That said, JSTL is still persisting with corex as the gas emitted has got high calorific value (almost 1,900–2,000kcal/cum), which helps the company run its gas-fired captive power units (230MW). Currently, the corex plant is running at 97% utilisation.
Donimalai disruption unlikely to hurt the company
We do not see the disruption in production at Donimalai to impact the company materially as: 1) captive mines (C-category) aggregating 5.2mtpa capacity are ramping up; 2) the increase in ceiling limit from 30mtpa to 35mtpa in Karnataka (excluding C-category mines) is likely to compensate for Donimalali’s 3mpta production loss; and 3) nearly 4mt of inventory is lying at various mines in Karnataka, including NMDC; therefore, any immediate shortfall can be made up.
Out of JSTL’s 22mtpa of iron ore requirement, nearly 25% is likely to be met by captive mines upon the full ramp-up. Additionally, the cost of mining at two currently operational mines is INR170–250/t, which would generate cost savings for the company.
Option to expand capacity by another 5mtpa
Capacity of the Vijayanagar plant can be expanded by another 5mtpa. Soil testing has been done and environmental clearance for the entire 18mtpa integrated plant too has been obtained. Besides, after the construction of 38mnm3 reservoir, the company has enough resources for meeting water requirements of the 18mtpa plant (after potential expansion). The current water requirement is 2.8m3/t of crude steel, which the company plans to cut to 2.5 m3/t of crude steel over the next few years.
We see option of further expansion as a big positive for the company’s expansion plans beyond FY21E.
3 Edelweiss Securities Limited Metals and Mining
Project progress on track
Pipe conveyor to aid cost reduction up to INR300/t from Q4FY19 The 24km pipe conveyor is divided into four sections: 7km, 8km, 5km and 4km. Every section has two inspection stations for maintenance of the conveyor. The conveyor has a rated capacity of 3,500tph and 5m/min.
The conveyor belt is expected to be commissioned in Q4FY19 and reduce cost by almost INR300/t adjusting for trucking requirements to the stockyard. The current average logistics cost is INR500/t.
Expect downstream projects to be commissioned by December-19 JSTL has plans for modifying and enhancing the capacity of steel melt shop by increasing the capacity of electric arc furnace (EAF) by 1mtpa and converting it to “zero power” furnace based on technology from Tenova. This is called zero power as electrodes would not be used and there will not be arc-ing. This is similar to NEOF being used at JSPL.
HSM-1 at Vijayanagar is being revamped to achieve 3.8mtpa via upgradation of the reheating furnace. In order to process additional billets, a new wire rod mill of 1.2mtpa is being installed.
A HRPO line of 1.2mtpa capacity is being added for expanding the auto- and construction- related offerings. The equipment is being sourced from Andritz, Austria. The line is expected to be commissioned in December 2019 with an additional ramp-up time of 6–12 months. Currently, the foundation work at the site is in progress—key equipment and electrical panels have arrived at the site. We expect the erection to commence soon.
CRM-1 complex is being upgraded by adding PLTCM (pickling line and tandem cold rolling mill) of 0.95mtpa is likely to be commissioned by December 2019. In addition, two more galvanising lines with cumulative capacity of 0.9mpta are being added. We observed that foundation work is in progress. A line each is expected to be commissioned in August 2019 and September 2019. Equipment is procured from Danieli, Italy.
Table1: Expansion projects largely on track Current Expected Timeline Total capacity 12 13 Dec-19 Flats 8.2 8.8 Dec-19 Longs 2.8 4 Jul-19 CRM1 complex 0.85 1.8 Dec-19 Source:Company data, Edelweiss research
8mtpa pellet plant to be commissioned by end-March 2020 JSTL is setting up an 8mtpa pellet plant spread over 160,000m2 based on technology from Metso and design consultancy by Mecon. The pellet plant is expected to be commissioned by March 2020 and is expected to reduce the dependence on more expensive and erratically available iron ore lumps.
4 Edelweiss Securities Limited JSW Steel
Stock price movement not reflecting consensus earnings Despite the stock price coming off 27% from its 52-week high, consensus FY20E EBITDA has come off merely 3%; hence, we clearly find a divergence in the earnings and stock price movement. Additionally, compared to the stock’s last three months’ return of -25%, EBITDA estimates have been broadly unchanged. Refer to our note, Metals & Mining - Steel: The silver lining; sector update for a detailed discussion around the pessimism in the current stock price.
Chart 1: Stock price movement inconsistent with earnings expectations 450 250.0
360 200.0
270 150.0
180 100.0
(INR bn) (INR (INR/share) 90 50.0
0 0.0
17 18
18
17 18
18 17
17 18
18
- -
-
- -
- -
- -
-
Jul Jul
Jan
Sep Sep
Nov Nov
Mar
May May
Price Yr 20 EBITDA Estimate Source: Bloomberg, Edelweiss research
Valuation – At a premium to peers JSTL is trading at a premium to domestic peers since April 2017. Despite relative underperformance over the past three months, the stock has been an outperformer over the past 12 months, yielding a return of 24% vis-a-vis negative returns for other companies.
Chart 2: JSTL is trading at a premium to domestic peers in anticipation of higher RoE
10.00
8.00
6.00 (x) 4.00
2.00
0.00
07 08 09 10 11 12 13 14 15 16 17 18
07 08 10 11 12 14 15 17 18 09 13 16
------
------
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr
Average (TSL, SAIL and JSPL) JSW Steel Source: Bloomberg, Edelweiss research
5 Edelweiss Securities Limited Metals and Mining
Chart 3: JSTL has been trading at a premium to Tata Steel for past two years 9.0
7.4
5.8 (x) 4.2
2.6
1.0
13 14 15 16 17 18 07 08 09 10 11 12
13 14 15 16 17 18 07 08 09 10 11 12
------
------
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr
Tata Steel JSW Steel
Source: Bloomberg, Edelweiss research
Compared to global peers as well, JSTL is the only one of the five major players trading at premium to its last ten-year average. We believe that better RoE and EBITDA accretion than peers justify the premium that the stock commands.
Chart 4: JSTL is trading at a premium to its average trading multiple
Nanjing Hebei Steel Erdemir Maanshan SSAB US Steel POSCO Dongkuk Steel ArcelorMittal Hyundai Steel Baosteel Angang Ansteel SAIL Tata Steel JSPL Kobe Steel Steel Dynamics JFE Steel Commercial Metals Ezz Steel China Steel Voestalpine Nippon Steel Bluescope Gerdau Nucor Severstal JSW Steel ThyssenKrupp AK Steel Evraz (70.0) (50.0) (30.0) (10.0) 10.0 30.0
Source: Bloomberg, Edelweiss research
6 Edelweiss Securities Limited JSW Steel
Annexure 1: An illustration of production workflow at Vijayanagar
Rebar (2.2mtpa)
Sinter plant (12.95mtpa) Corex (1.7mtpa) BOF (12.95mtpa) Billet(3.0mtpa)
Wire rods (0.6mtpa)
HRPO HR Coils
HR (65%) HR Plates Pellet Plant (9.2mtpa) Blast furnace (10.4mtpa) EAF(1.5mtpa) Slabs (3.0mtpa)
Galvolume CRCA,CRFH, CRNO
CR (35%)
Galvanised
Coke oven (4.62mtpa) DRI (1.2mtpa)
Source: Company data, Edelweiss research
7 Edelweiss Securities Limited Metals and Mining
Company Description JSW, part of the USD8bn O.P. Jindal Group, was incorporated as Jindal Vijaynagar Steel (JVSL). It began operations in 1999 with the commissioning of the first Corex-2000 module in India (third in the world after Posco in South Korea and Isicor in South Africa), with a capacity to produce 0.8 mn tonnes of hot metal. In FY05, the company merged group company JISCO (Jindal Iron and Steel Company), which had a strong presence in downstream products such as CR and GP/GC products. In FY06, the company merged Euro Ikon, Euro Coke, and JSW Power and was renamed JSW Steel, transforming into an integrated steel manufacturer. In FY14, the company completed the merger of JSW Ispat. The current steel capacity of JSW Steel is 18mtpa, which includes 12mtpa capacity at Vijaynagar, 5mtpa capacity at Dolvi and 1mtpa capacity at Salem that caters exclusively to the long product segment.
Investment Theme The outlook for global steel industry is improving primarily on capacity cuts being implemented in China. We expect JSW Steel to further improve its profitability on the back of lower raw material prices and value added products in the portfolio. We also expect JSW Steel to benefit from possible acquisition of stressed assets if the price is ~USD 500/t.
Key Risks Sharp fall in global steel prices/ spreads
Demand contraction in India/World
Supply cuts being undermined in China
Higher acquisition cost of stressed assets
8 Edelweiss Securities Limited JSW Steel
Financial Statements Key Assumptions Income statement (INR mn) Year to March FY17 FY18 FY19E FY20E Year to March FY17 FY18 FY19E FY20E Macro Net revenue 555,431 702,250 980,000 1,152,263 GDP(Y-o-Y %) 6.6 6.5 7.1 7.6 Materials costs 297,486 387,810 582,156 714,665 Inflation (Avg) 4.5 3.8 4.5 5.0 Accretion to stock (14,859) 2,440 - - Repo rate (exit rate) 6.3 6.0 6.0 6.5 Employee costs 16,996 18,430 24,771 31,909 USD/INR (Avg) 67.1 64.5 70.0 72.0 Total SG&A expenses 85,853 88,660 165,046 175,510 Sector Power and Freight 48,828 56,970 - - HRC price-India(USD/t) 513 611 639 614 Total operating expenses 434,304 554,310 771,973 922,084 HRC price-India(INR k/t) 34 39 45 44 EBITDA 121,127 147,940 208,027 230,179 Hard coking coal (USD/t) 168 166 199 206 Depreciation 34,299 33,870 35,723 38,194 Soft coking coal (USD/t) 141 140 168 174 EBIT 86,828 114,070 172,304 191,985 India steel demand (%) 5 5 5 5 Less: Interest Expense 37,681 37,010 38,528 41,225 Company Add: Other income 2,136.6 1,670.00 1,691.00 1,813.1 Slabs prodn volumes(mt) 15.8 16.3 17.0 17.2 Profit Before Tax 51,284 76,090 135,466 152,573 Sales volumes (MT) 15 16 16 17 Less: Provision for Tax 16,743 15,380 40,640 45,772 Other flat products 11 11 12 12 Less: Minority Interest (221) (1,010) - - Long Rolled Products 3.1 3.5 4.5 4.6 Add: Exceptional items - (2,640) - - Total Sales Volume 14.8 15.5 16.0 16.5 Associate profit share 89 420 420 420 HRC 34,950 41,938 47,256 46,894 Reported Profit 34,851 62,140 95,246 107,221 Iron Ore Lumps 3,350 2,500 2,400 2,400 Exceptional Items - (2,106) - - Coal/Coke 11,238 10,681 13,895 14,832 Adjusted Profit 34,851 64,246 95,246 107,221 Avg. Interest rate (%) 8.2 8.8 9.0 9.0 Shares o /s (mn) 2,417 2,417 2,417 2,417 Depreciation rate (%) 5.2 4.9 4.9 4.9 Adjusted Basic EPS 14.4 26.6 39.4 44.4 Tax rate (%) 32.6 20.2 30.0 30.0 Diluted shares o/s (mn) 2,417 2,417 2,417 2,417 Dividend payout (%) 16.8 14.1 17.6 17.5 Adjusted Diluted EPS 14.4 26.6 39.4 44.4 Capex (INR mn) 28,862 47,114 117,469 150,000 Adjusted Cash EPS 34.9 39.4 54.2 60.2 Net borrowings (INR mn) 443,419 408,090 416,577 443,677 Dividend per share (DPS) 2.3 3.2 5.9 6.7 Debtor days 28 25 25 25 Dividend Payout Ratio(%) 16.8 14.1 17.6 17.5 Inventory days 76 67 72 72
Payable days 89 85 90 90 Common size metrics Cash conversion cycle 15 7 7 7 Year to March FY17 FY18 FY19E FY20E Operating expenses 78.2 78.9 78.8 80.0 Depreciation 6.2 4.8 3.6 3.3 Interest Expense 6.8 5.3 3.9 3.6 EBITDA margins 21.8 21.1 21.2 20.0 Net Profit margins 6.3 9.1 9.7 9.3
Growth ratios (%) Year to March FY17 FY18 FY19E FY20E Revenues 33.6 26.4 39.6 17.6 EBITDA 88.8 22.1 40.6 10.6 PBT (307.8) 48.4 78.0 12.6 Adjusted Profit (7,253.0) 84.3 48.3 12.6 EPS (815.3) 84.3 48.3 12.6
9 Edelweiss Securities Limited Metals and Mining
Balance sheet (INR mn) Cash flow metrics As on 31st March FY17 FY18 FY19E FY20E Year to March FY17 FY18 FY19E FY20E Share capital 3,013 3,018 3,018 3,018 Operating cash flow 56,347 123,524 148,288 166,748 Reserves & Surplus 223,460 276,960 354,911 442,735 Financing cash flow (32,366) (95,423) (49,244) (30,042) Shareholders' funds 226,474 279,978 357,929 445,752 Investing cash flow (16,332) (32,205) (101,531) (133,806) Minority Interest (2,457) (4,640) (4,640) (4,640) Net cash Flow 7,649 (4,104) (2,487) 2,900 Long term borrowings 324,158 317,230 323,230 353,230 Capex (28,862) (47,114) (117,469) (150,000) Short term borrowings 137,115 104,610 104,610 104,610 Dividend paid (5,865) (9,050) (16,716) (18,817) Total Borrowings 461,273 421,840 427,840 457,840
Long Term Liabilities 4,555 6,580 6,580 6,580 Profitability and efficiency ratios Def. Tax Liability (net) 29,892 25,560 25,560 25,560 Year to March FY17 FY18 FY19E FY20E Sources of funds 719,736 729,318 813,269 931,092 ROAE (%) 16.8 25.3 30.3 27.0 Gross Block 653,900 679,450 754,450 779,450 ROACE (%) 13.2 16.7 23.5 23.1 Net Block 586,582 577,610 617,177 604,272 Inventory Days 121 113 99 106 Capital work in progress 40,814 56,290 98,759 223,759 Debtors Days 23 23 21 23 Intangible Assets 3,536 4,080 4,080 4,080 Payable Days 151 132 120 127 Total Fixed Assets 630,932 637,980 720,016 832,111 Cash Conversion Cycle (8) 4 1 2 Non current investments 10,670 11,570 11,570 11,570 Current Ratio 1.5 1.4 1.3 1.3 Cash and Equivalents 17,852 13,750 11,263 14,163 Gross Debt/EBITDA 3.6 2.6 1.9 1.9 Inventories 113,950 125,940 190,505 224,459 Gross Debt/Equity 1.9 1.4 1.1 1.0 Sundry Debtors 41,494 47,040 66,018 77,785 Adjusted Debt/Equity 1.9 1.4 1.1 1.0 Loans & Advances 2,946 6,080 6,080 6,080 Net Debt/Equity 1.8 1.3 1.1 0.9 Other Current Assets 62,035 77,280 77,280 77,280 Interest Coverage Ratio 2.3 3.1 4.5 4.7 Current Assets (ex cash) 220,425 256,340 339,883 385,604
Trade payable 133,480 159,440 238,131 280,574 Operating ratios Other Current Liab 26,663 30,882 30,882 30,882 Year to March FY17 FY18 FY19E FY20E Total Current Liab 160,143 190,322 269,013 311,456 Total Asset Turnover 1.0 1.2 1.6 1.9 Net Curr Assets-ex cash 60,282 66,018 70,870 74,148 Fixed Asset Turnover 0.8 1.0 1.3 1.3 Uses of funds 719,736 729,318 813,269 931,092 Equity Turnover 2.7 2.8 3.1 2.9 BVPS (INR) 93.7 115.8 148.1 184.4
Valuation parameters
Free cash flow (INR mn) Year to March FY17 FY18 FY19E FY20E Year to March FY17 FY18 FY19E FY20E Adj. Diluted EPS (INR) 14.4 26.6 39.4 44.4 Reported Profit 34,851 62,140 95,246 107,221 Y-o-Y growth (%) (815.3) 84.3 48.3 12.6 Add: Depreciation 34,299 33,870 35,723 38,194 Adjusted Cash EPS (INR) 34.9 39.4 54.2 60.2 Interest (Net of Tax) 25,379 29,529 26,970 28,857 Diluted P/E (x) 20.7 11.2 7.6 6.7 Others (77,070) 5,708 (14,504) (10,803) P/B (x) 3.2 2.6 2.0 1.6 Less: Changes in WC (38,889) 7,724 (4,852) (3,278) EV / Sales (x) 2.6 1.9 1.4 1.2 Operating cash flow 56,347 123,524 148,288 166,748 EV / EBITDA (x) 9.6 7.6 5.4 5.0 Less: Capex 28,862 47,114 117,469 150,000 Dividend Yield (%) 0.8 1.1 2.0 2.2
Free Cash Flow 27,485 76,410 30,819 16,748
Peer comparison valuation Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%) Name (USD mn) FY19E FY20E FY19E FY20E FY19E FY20E JSW Steel 10,050 7.6 6.7 5.4 5.0 30.3 27.0 Jindal Steel & Power 2,152 9.8 6.3 5.7 4.7 5.2 7.4 Steel Authority of India 2,959 6.2 4.5 5.4 4.6 9.2 11.2 Tata Steel 8,150 7.2 6.0 6.4 5.1 13.9 14.9 Median - 7.4 6.2 5.6 4.9 11.5 13.1 AVERAGE - 7.7 5.9 5.8 4.9 14.7 15.1 Source: Edelweiss research
10 Edelweiss Securities Limited JSW Steel
Additional Data Directors Data Sajjan Jindal Chairman & Managing Direcor Seshagiri Rao M V S Joint Managing Director & Group CFO Dr. Vinod Nowal Dy. Managing Director Jayant Acharya Director (Commercial & Marketing) Dr. S. K. Gupta Director Dr. Vijay Kelkar Director Sudipto Sarkar Director Kannan Vijayaraghavan Director Uday M . Chitale Director Naveen Raj Sing Nominee Director Punita Kumar Sinha Non-Executive Independent Director Kyoichi Kameyama Nominee Director
Auditors - Delloitte Haskins & Sells *as per last annual report
Holding – Top10 Perc. Holding Perc. Holding Jfe steel internatio 15 Jsw techno projects 10.23 Jsw holdings limited 7.39 Vividh finvest pvt l 5.82 Vidya finvest pvt lt 5.79 Sahyog hdgs pvt ltd 4.58 Jsw energy ltd 2.9 Virtuous tradecorp p 2.5 Danta enterprises pv 2.5 Gagandeep credit cap 1.9
*in last one year
Bulk Deals Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades Reporting Data Acquired / Seller B/S Qty Traded 19 Nov 2018 Jsw Steel Employees Welfare Trust - Esop Plan 2016 A/C Buy 88444.00 15 Oct 2018 Jsw Techno Projects Management Limited Buy 316000.00 15 Oct 2018 Jsw Steel Employees Welfare Trust - Esop Plan 2016 A/C Buy 350000.00 11 Oct 2018 Jsw Steel Employees Welfare Trust - Esop Plan 2016 A/C Buy 333000.00 11 Oct 2018 Jsw Techno Projects Management Limited Buy 1012000.00
*in last one year
11 Edelweiss Securities Limited RATING & INTERPRETATION
Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk Coal India BUY SP M Hindalco Industries BUY SO M Hindustan Zinc BUY SO L Jindal Stainless Ltd BUY SO H Jindal Steel & Power BUY SO M JSW Steel BUY SO M NMDC BUY SO M Steel Authority of India BUY SP M Tata Steel BUY SO M Vedanta BUY SO M
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING
Ratings Criteria Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe within the sector
RELATIVE RISK RATING
Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
12 Edelweiss Securities Limited JSW Steel
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected]
Aditya Narain
Head of Research [email protected]
Coverage group(s) of stocks by primary analyst(s): Metals and Mining Coal India, Hindalco Industries, Hindustan Zinc, Jindal Stainless Ltd, Jindal Steel & Power, JSW Steel, NMDC, Steel Authority of India, Tata Steel, Vedanta
Recent Research
Date Company Title Price (INR) Recos
10 -Dec-18 Metals and China exports volume Mining vindicates bullish ferrous outlook; Sector Update 06-Dec-18 Tata Steel Deal investigation: A routine 510 Buy check, not a road block; Edel Flash 06-Dec-18 Metals and Coal: Reviving China supply Mining could singe e-auction premium; Sector Update
Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period * 1stocks under review Hold appreciate up to 15% over a 12-month period > 50bn Between 10bn and 50 bn < 10bn 743 Reduce depreciate more than 5% over a 12-month period Market Cap (INR) 156 62 11 594
One year price chart 446 470
(INR) 297 420 149 370
(INR)
- 320
14
14 14
14 14
14
14
14
14
14
14
14
-
- -
-
-
-
-
- -
- -
- 270
Jul
Jan
Jun
Oct
Apr
Sep Feb
Dec
Aug Nov
Mar May
220
17 18
18
18
18
18
18
18 18 18
18
18
18
- -
- -
-
- -
-
- -
- -
-
Jul
Jan
Jun
Oct
Apr
Feb Sep
Dec Dec
Aug
Nov Mar May JSW Steel
13 Edelweiss Securities Limited
Metals and Mining
DISCLAIMER Edelweiss Securities Limited (“ESL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is licensed to carry on the business of broking, depository services and related activities. The business of ESL and its Associates (list available on www.edelweissfin.com) are organized around five broad business groups – Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance.
This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration No.INH200000121 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 includes Financial Instruments and Currency Derivatives. The information contained herein is from publicly available data or other sources believed to be reliable. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in Securities referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors.
This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ESL and associates / group companies to any registration or licensing requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. ESL reserves the right to make modifications and alterations to this statement as may be required from time to time. ESL or any of its associates / group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. ESL is committed to providing independent and transparent recommendation to its clients. Neither ESL nor any of its associates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The information provided in these reports remains, unless otherwise stated, the copyright of ESL. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of ESL and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.
ESL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the ESL to present the data. In no event shall ESL be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the ESL through this report.
We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of their receiving this report.
ESL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the Securities, mentioned herein or (b) be engaged in any other transaction involving such Securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. ESL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with ESL.
14 Edelweiss Securities Limited JSW Steel
ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. ESL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk. Research analyst has served as an officer, director or employee of subject Company: No ESL has financial interest in the subject companies: No ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report. Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No Subject company may have been client during twelve months preceding the date of distribution of the research report. There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer. A graph of daily closing prices of the securities is also available at www.nseindia.com Analyst Certification: The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
Additional Disclaimers
Disclaimer for U.S. Persons This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.
15 Edelweiss Securities Limited Metals and Mining
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.
Disclaimer for U.K. Persons The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA").
In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).
This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person.
Disclaimer for Canadian Persons This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst.
This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person.
ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.
Disclaimer for Singapore Persons In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No. 201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors. Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved
Access the entire repository of Edelweiss Research on www.edelresearch.com
16 Edelweiss Securities Limited