JSW Steel Ltd’s stand-alone March quarter recurring profit after tax (PAT) at Rs650 crore (up 47% sequentially) stood higher than our estimates of Rs530 crore, driven by higher realizations and non-operating factors. The company also announced that it is close to acquiring a coking coal mine in the US, with a total reserve base of 123 million tonnes (mt), for a consideration of $100 million.
JSW Steel expects 1 mt of coking coal in the first year of operation. However, further details on the proposed acquisition are sketchy. JSW Steel will also issue warrants to promoters, which would lead to a 9% dilution, to accelerate expansion beyond 11 million tonnes per annum (mtpa). Expensive valuations, high leverage and signs of weakness in steel prices make risk-reward unfavourable.
Stand-alone earnings before interest, tax, depreciation and amortization (Ebitda) at Rs1,330 crore was 5% ahead of our estimates on higher realizations. Reversal of deferred tax liability due to a reduction in the effective tax rate boosted the positive surprise at PAT levels (tax rate for the fourth quarter was at 24%; effective tax rate 30%). Its
At current prices, conversion of these warrants would lead to an equity infusion of Rs2,140 crore. The management mentioned that these funds will be utilized to accelerate expansion plans at Vijaynagar or in the
Scrap prices, a leading indicator of steel prices, have declined sharply by 12.5% in recent weeks.
Moreover, export prices of long products from
The company announced an acquisition of a coking coal mine in the
Thursday, May 6, 2010
JSW Steel plans to expand but risk-reward unfavourable
Industry Research Reports
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