Key Highlights. YoY (% change) Q1FY10. QoQ % Particulars 2Q FY10 2Q FY09 Realizations per tone 31,899 53,436-40% 30,462 5% Source: Company

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1 29th October, 2009 Key Data INR CMP 743 Target Price 646 Earlier target price 481 Bloomberg Code JSTL IN Reuters Code JSTL.BO BSE Code NSE Code JSWSTEEL Face Value (INR) 10 Market Cap (INR bn) Week High (INR) Week Low (INR) 161 Avg. Daily Volume (6m) Market Lot 1650 Shareholding % Promoters Group 45.0 Banks / Mutual Fund / FI 6.3 FII Body Corporate 3.4 Others 15.6 Total 100 JSW Steel Ltd JSW Steel Ltd s (JSW) standalone revenue increased 3% YoY and 15% QoQ in 2Q FY10, due to a 74% YoY and 10% QoQ increase in sales volume. PAT too recorded growth of 42% YoY and 33% QoQ. However adjusted profit (adjusted for foreign ex gain/loss) dropped 19% YoY. Key Highlights JSW s sales grew 3% YoY to INR48.4 billion in 2Q FY10, from INR46.0 billion in 2Q FY09. This was due to 74% increase in volumes to 1.45 million tonnes in 2Q FY10 from million tonnes in 2Q FY09. Sequentially, volumes rose 10%. Products (Mn Tonnes) Q2FY10 Q2FY09 YoY (% ) Q1FY10 QoQ (% ) HR Coils-Flat % % Value added-flat % % Long % % Semis % % Total % % Contrary to higher volumes, sales realizations fell 40% YoY. Realizations dropped from INR53,436 per tonne in 2Q FY09 to INR31,899 per tonne in 2Q FY10. However, they were 5% higher QoQ. YoY % QoQ % Particulars 2Q FY10 2Q FY09 1Q FY10 Realizations per tone 31,899 53,436-40% 30,462 5% The company s EBIDTA increased 5% YoY and 59% QoQ in 2Q FY10. It was mainly attributable to higher sales volumes. Moreover, JSW recorded one-time income of INR602 million from sale of carbon credits, which further increased its EBIDTA. However, per tonne EBIDTA realizations fell 40% YoY due to the sharp more than 50% YoY drop in steel prices. Sequentially, EBIDTA per tonne rose 45%. YoY % QoQ % Particulars 2Q FY10 2Q FY09 Q1FY10 EBIDTA (INR Mn) % % EBIDTA per tone % % Analyst Chintan J. Mehta research@acm.co.in Tel:

2 JSW s PAT increased 42% YoY, from INR3.2 billion in 2Q FY09 to INR4.4 billion in 2Q FY10. However, adjusted profit (adjusted for foreign ex gain/loss) declined 19% due to foreign ex loss of INR2.7 billion in 2Q FY09. Adding back the loss to 2Q FY09 earnings, the company recorded a fall of 19% compared with 2Q FY10. Quarterly Financials Standalone Operations: Particulars (INR Mn) 2Q FY10 2Q FY09 YoY % 1Q FY10 QoQ % Sales % % Excise % % Net Sales % % Other Income % % Total Income % % Expenditure Increase in Stock In trade % % Raw Materials % % Power and Fuel % % Employee Cost % 920 4% Other Expenditure % % Total Expenditure % % EBIDTA % % % as to Net Sales 26% 27% 19% Depreciation % % EBIT % % Interest % % PBT % % Foreign Ex gain/ (loss) PBT (After Foreign currency adjustments) % % Tax % % PAT % % Adj. Pat % % No. of Equity shares EPS Adj EPS

3 Consolidated Operations: Particulars (INR Mn) Q2FY10 Q2FY09 YoY (% ) Q1FY10 QoQ (% Net Sales % % Total Income % % Total Expenditure % % EBIDTA % % Depreciation % % EBIT % % Interest % % PBT % % Foreign Ex gain/ (loss) PBT (After Foreign currency adjustments) % % Tax % % PAT % % Adj. Pat % % EPS Adj. EPS US subsidiary: Operational performance YoY (% ) QoQ (% ) Particulars Q2FY10 Q2FY09 Q1FY10 Production (Tonnes) Plate Mill % % Pipe Mill % % Sales (Tonnes) Plate Mill % % Pipe Mill % % JSW s US subsidiary experienced a drastic reduction in operational activities. Capacity utilization of the plate mill dropped to 20% in 2Q FY10 vs. 44% in 2Q FY09. However, QoQ, such capacity utilization it showed some improvement, from 11% in 1Q FY10 to 20% in 2Q FY10. The pipe mill too followed the same trend. Financial performance: Particulars (USD Mn) 2Q FY10 2Q FY09 1Q FY10 Turnover EBIDTA PBT PAT The US subsidiary s sales fell sharply from US$165 million in 2Q FY09 to a mere US$41.5 million in 2Q FY10. However, QoQ, sales grew 131% owing to marginal improvement in capacity utilization. Despite higher capacity utilization in 2Q 3

4 FY10, PAT dropped 20%. Higher inventories from previous quarters led to such losses. We expect such losses to continue in the next few quarters. Revision in Estimates Higher volumes in the last quarter led to increase in sales. Moreover, lower raw material costs are enabling JSW to maintain its margins. In view of this and the recent increase in steel prices, we revise our FY11 production estimate by 14%, from 6.1 million tonnes to 6.5 million tonnes. We, however, maintain our FY10 production estimate. We revise our FY10 margin estimate owing to better-than-estimated performance of the US subsidiary and higher sales realizations per tonne in the domestic operations. Thus, we incorporate the subsidiary s performance, but we maintain that it will continue to make losses at the PAT level. Accordingly, we increase our sales estimate by 16% and decrease our EBIDTA margin forecast by 400bps for FY10. Profit and Loss Old Revised % Old Revised % Particulars FY10E FY10E FY11E FY11E Net Sales 142, % 159, % Total Expenditure 107, % 118, % Operating Profits 35, % 40, % Other Income 1, % 1, % EBDITA 37, % 42, % Depreciation 9, % 11, % EBIT 27, % 30, % Interest 11, % 10, % PBT 15, % 19, % Foreign Ex Gain/(Loss) PBT 15, % 19, % Taxes 5, % 6, % Profit After Tax 10, % 13, % dividend on Preference shares % % Adj.PAT 10, % 13, % Source: ACMIIL Research Valuation and Recommendation We expect JSW s sales to grow 4% and 14% YoY in FY10 and FY11, respectively, on the back of healthy volumes and firming steel prices. However, our concerns of high debt:equity of 1.9:1 and underperforming US operations still persist. Our initial recommendation was clouded by weakening global steel prices. However, with firming global steel prices and robust steel consumption in India, we increase our P/E to 8x (from 7x). At CMP of INR743, we believe that volume growth has already been factored in. We maintain our REDUCE recommendation on JSW with a price target of INR646, which translates into forward P/E of 8x its revised FY11E EPS of INR

5 Financials Profit and Loss INR Million Particulars FY07 FY08 FY09 FY10E FY11E Net Sales 85, , , , ,916 Total Expenditure 58,866 89, , , ,285 Operating Profits 26,678 34,780 29,818 34,915 44,630 Other Income 1,452 1,537 2,717 1,500 1,500 EBDITA 28,130 36,317 32,535 36,415 46,130 Depreciation 4,983 7,419 9,878 10,168 11,600 EBIT 23,147 28,898 22,657 26,247 34,530 Interest 3,996 5,730 11,556 12,000 11,512 PBT 19,151 23,168 11,101 14,247 23,018 Foreign Ex Gain/(Loss) 0 1,075-7,948 2,179 0 PBT 19,151 24,243 3,153 16,426 23,018 Taxes 6,233 7, ,421 7,596 Profit After Tax 12,592 16,060 2,087 10,666 15,082 Dividend on Pref shares Adj.PAT 12,592 15,170 9,017 8,487 15,082 Growth in sales 46% 28% 4% 14% Operating Profits Growth 30% -14% 17% 28% PAT Growth 20% -41% -6% 78% Operating Profit Margin Net Profit Margin Adj. Net profit Margin 14.7% 12.2% 5.7% 5.1% 7.9%, ACMIIL Research BALANCE SHEET INR Million Particulars FY07 FY08 FY09 FY10E FY11E Sources of Funds Share Capital 5,258 5,370 5,370 5,370 5,370 Reserves and Surplus 51,330 73,518 72,669 83,335 98,417 Total Shareholders Funds 56,588 78,888 78,040 88, ,788 Total Loan Funds 41, , , , ,104 Share Application money Minority Interest 0 1,919 2,732 2,050 2,050 Net Deferred Tax Liability 10,125 12,517 12,768 12,768 17,345 Total Capital Employed 108, , , , ,287 Application of Funds Gross Block 105, , , , ,000 Less: Accumulated Depreciation 23,239 30,743 40,798 50,965 62,565 Net Block 81, , , , ,435 Capital Work in Progress 20,125 57,708 95,852 60,000 60,000 Investments 2,450 4,696 3,966 4,000 4,000 Goodwill on Consolidation 39 7,831 7,831 7,831 7,831 Net Current Assets 1,985-5,857-31,699-1,020 1,021 Miscellaneous Expenses not w/off 1, Total Assets 108, , , , ,287, ACMIIL Research 5

6 Cash flow Statement INR million Particulars FY07 FY08 FY09 FY10E FY11E Pre tax profit 19,151 24,243 3,153 16,426 23,018 Add Depreciation 4,983 7,419 9,878 10,168 11,600 Interest Exp 2,883 4,735 7,356 12,000 11,512 Interest Earned Others 981-1,141 1,506 2,179 0 Profit before working capital s 27,924 34,731 21,767 40,773 46,130 Profit after working capital 31,069 36,302 48,548 40,950 53,475 Less Taxes -2,852-3,644-2,624-5,421-7,596 Net Cash flow from operating activities 28,218 32,658 45,924 35,529 45,879 Net Cash flow in investment activities -22,433-97,886-58,409-21,145-45,000 Net Cash flow from financing activities -3,844 66,947 12,363-16,519 3,929 Net increase /(decrease) in cash 1,940 1, ,135 4,808 Op. balance of cash and cash equivalents 500 2,440 4,391 4,269 2,134 Add As per Amalgamation Cl. balance of cash and cash equivalents 2,440 4,159 4,269 2,134 6,943, ACMIIL Research Ratios Profitability Ratios FY07 FY08 FY09 FY10E FY11E Operating Profit Margin (%) 31.2% 27.9% 18.7% 21.0% 23.5% EBDIT Margin (%) 32.9% 29.2% 20.4% 21.9% 24.3% PAT Margin (%) 14.7% 12.2% 5.7% 5.1% 7.9% RONW (%) 22.3% 19.2% 11.6% 9.6% 14.5% ROCE (%) 23.5% 14.4% 9.3% 10.5% 12.3% Per Share Ratios EPS (Rs.) Adj. E.P.S CEPS (Rs.) BV Per Share (Rs.) Valuation Ratios P/E (x) P/CEPS (x) P/BV (x) EV/EBIDTA Capital Structure Ratios Debt/Equity Current Ratio Turnover Ratios Inventory Turnover Debtors turnover ratio Fixed Asset Turnover Source: ACMIIL Research 6

7 Notes Institutional Sales: Ravindra Nath, Tel: Kirti Bagri, Tel: Himanshu Varia, Tel: HNI Sales: Pranav Jain, Tel: Disclaimer: This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may from time to time have positions in and buy and sell securities referred to herein. 7