JSW STEEL LTD. Result Update: Q1 FY 12. C.M.P : Rs Target Price : Rs Date : 03 rd Sep 2011 BUY. Share Holding Pattern

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JSW STEEL LTD Result Update: Q1 FY 12 C.M.P : Rs.720.00 Target Price : Rs.814.00 Date : 03 rd Sep 2011 BUY Stock Data: Sector: Steel Face Value Rs. Rs.10.00 52 wk. High/Low (Rs.) 1400.00/594.

40 Share Holding Pattern 1 Year Comparative Graph JSW Steel Ltd BSE SENSEX SYNOPSIS JSW Steel Limited, belonging to JSW group, part of the O P Jindal Group, is one of the cost steel producers in the

1 JSW STEEL LTD Result Update: Q1 FY 12 C.M.P : Rs Target Price : Rs Date : 03 rd Sep 2011 BUY Stock Data: Sector: Steel Face Value Rs. Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs.In mn) Share Holding Pattern 1 Year Comparative Graph JSW Steel Ltd BSE SENSEX SYNOPSIS JSW Steel Limited, belonging to JSW group, part of the O P Jindal Group, is one of the cost steel producers in the world. It manufactures wide range of products such as hot rolled steel, cold rolled steel, galvanised steel and pre-painted galvanised steel. JSW Steel has largest galvanizing and color coating production capacity in the country and is the largest of galvanized products with presence in over 100 countries across five continents. By 2020, the Company aims to produce 34 million tons of steel annually with Greenfield integrated steel plants coming up in West Bengal and Jharkhand. Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 14% over 2010 to 2013E respectively. During the quarter, the company has reported PAT increased to Rs million from Rs million in previous year same quarter. The Company has acquired mining assets in Chile, USA and Mozambique. JSW Steel Ltd. is one among the largest Indian Steel Companies in India with capacity of 7.8MT. Years Net sales EBITDA Net Profit EPS P/E FY FY 12E FY 13E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) JSW Steel SAIL Tata Steel Sesa Goa Investment Highlights Q4 FY12 Results Update JSW STEEL LTD disclosed results for the quarter ended June Net sales for the quarter moved up 53% to Rs million as compared to Rs million during the corresponding quarter last year. During the quarter, the company has reported PAT increased to Rs million from Rs million in previous year same quarter. The Basic EPS of the company stood at Rs for the quarter ended June Quarterly Results - Consolidate (Rs in mn) As At June-11 June-10 %change Net sales PAT Basic EPS

3 Basic EPS of the company stood at Rs

4 Break up of Expenditure Expenditure for the quarter stood at Rs mn, which is around 59% higher than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 66% of the sales of the company and stood at Rs mn from Rs mn of the corresponding period of the previous year. Other Expenditure cost increased 23%YoY to Rs mn from Rs mn and accounts for 11% of the revenue of the company for the quarter. OPM and NPM for the quarter stood at 20% and 7% respectively from 22% and 6% respectively of the same period of the last year. 4

5 FY11 Performance Net profit of the company has increased at 10% yoy Rs mn from Rs mn of same period of last year. Total revenue for the year stood at Rs mn from Rs which is 26% increased than that of a year ago. EPS for the year stood at Rs per equity share of Rs each. Operating profit of the company stood at Rs mn. OPM for the year stood at 20.51%. Expenditure of the company increased 29% YoY to Rs mn. Interest expenses for the year stood at Rs mn. 5

6 Company Profile Forging ahead, JSW Steel Ltd. is one among the largest Indian Steel Companies in India today. India s third largest steelmaker, JSW Steel Ltd. consists of the most modern, eco-friendly steel plants with the latest technologies for both upstream & downstream processes. JSW is part of US $10 billion O.P.Jindal Group. It has grown to US$ 5 billion in little over a decade and has presence across various sectors Steel, Energy, Minerals, Port & Infrastructure, Cement, Aluminium and IT. JSW Steel, the flagship company of the JSW Group, is today an integrated steel manufacturer. JSW Steel is the largest private sector steel manufacturer in terms of installed capacity. JSW Steel is one of the lowest cost steel producers in the world. It has established a strong presence in the global value-added steel segment with the acquisition of steel mill in US and a service center in UK. JSW Steel has also formed a joint venture for setting up a steel plant in Georgia. The Company has also tied up with JFE Steel Corp, Japan for manufacturing the high grade automotive steel. JSW Steel has recently acquired a majority stake in Ispat Industries Ltd. This will make JSW Steel India s largest steel producer with a combined capacity of 14.3 MTPA by March The Company has also acquired mining assets in Chile, USA and Mozambique. JSW Steel offers the entire gamut of steel products Hot Rolled, Cold Rolled, Galvanized, Galvalume, Pre-painted Galvanised, Pre-painted Galvalume, TMT Rebars, Wire Rods & Special Steel Bars, Rounds & Blooms. JSW Steel has manufacturing facilities at Toranagallu in Karnataka, Vasind & Tarapur in Maharashtra and Salem in Tamil Nadu. By 2020, the Company aims to produce 34 million tons of steel annually with Greenfield integrated steel plants coming up in West Bengal and Jharkhand. 6

7 Manufacturing facilities JSW Steel's manufacturing units are located in Bellary District near Bangalore, near Mumbai and Tamil Nadu. Its manufacturing facilities, Vijayanagar Works in Bellary district is the first greenfield project in the world to have Corex technology to produce hot metal. JSW Steel s Vasind & Tarapur Works, located near Mumbai, is India s biggest producer and largest exporter of galvanized steel. The total capacity of this plant is 0.9 MTPA of galvanised, Galvume and colour coated cold rolled products. The company s Tamil Nadu plant, Salem Works manufactures pig iron, steel, billet and rolled steel products with 1 MTPA of production capacity. JSW Steel is India s third largest steelmaker that has received various certifications such as Awards ISO:9001 for Quality Management System ISO:14001 for Environment Management System OHSAS:18001 for Occupational Health & Safety Management System JSW Steel received CII-ITC Sustainability Award for Significant Achievement in Economic, Environment and Social Performance. It was honoured with CII-Exim Bank Award for significant Achievement towards Business Excellence The company received Gold Award in Metal and Mining Sector: for Outstanding Achievement in Safety Management by Greentech Foundation. Marketing Initiatives It has also introduced B2B trading portal STEELeMART. This online trading portal provides a platform to hundreds of steel users and traders across the country to get the best deals on steel products. The company has also launched JSW Shoppe at Hubli and Jaipur to expand its retail base and ensure the easy available of quality and branded steel in all its market. 7

8 Financial Results 12 Months Ended Profit & Loss Account (Consolidated) Value(Rs.in million) FY10A FY11A FY12E FY13E 12m 12m 12m 12m Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Minority Interest Share of Profit & Loss Asso Net profit Equity Capital Reserves Face Value(Rs.) EPS *A=Actual, *E=Estimated 8

9 Quarterly Ended Profit & Loss Account (Consolidated) Value(Rs.in million) 30-Dec Mar Jun Sep-11 3m(A) 3m(A) 3m(A) 3m(E) Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Minority Interest Share of Profit & Loss Asso Net Profit 2, , , , Equity Capital Face Value(Rs.) EPS *A=Actual, *E=Estimated 9

10 Key Ratio Particulars FY10 FY11 FY12E FY13E EPS (Rs.) EBITDA Margin (%) 24.15% 20.51% 19.04% 18.63% PAT Margin (%) 8.14% 6.88% 6.62% 6.74% P/E Ratio (x) ROE (%) 17.42% 10.60% 11.06% 11.47% ROCE (%) 16.13% 12.27% 12.89% 13.35% EV/EBITDA (x) Debt-Equity Ratio Book Value (Rs.) P/BV Charts: 10

11 11

12 12

13 Outlook and Conclusion At the current market price of Rs , the stock is trading at 7.90 x FY12E and 6.79 x FY13E respectively. Price to Book Value of the stock is expected to be at 0.91 x and 0.81 x respectively for FY12E and FY13E. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs and Rs respectively. The Company has recently acquired a majority stake in Ispat Industries Ltd. This will make JSW Steel India s largest steel producer with a combined capacity of 14.3 MTPA by March JSW Steel has largest galvanizing and color coating production capacity in the country and is the largest of galvanized products with presence in over 100 countries across five continents. By 2020, the Company aims to produce 34 million tons of steel annually with Greenfield integrated steel plants coming up in West Bengal and Jharkhand. 13

14 Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 14% over 2010 to 2013E respectively. During the quarter, the company has reported PAT increased to Rs million from Rs million in previous year same quarter. The Company has acquired mining assets in Chile, USA and Mozambique. JSW Steel Ltd. is one among the largest Indian Steel Companies in India with capacity of 7.8MT. On the basis of EV/EBITDA, the stock trades at 2.87 x for FY12E and 2.55 x for FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview Sector Structure/ Market Size Steel industry has a major role to play in the economic growth of India. With new global acquisitions by Indian steel giants, setting up of new state-of-the-art steel mills, modernization of existing plants, improving energy efficiency and backward integration into global raw material sources, India is now on the centre of the global steel map. Consumption of steel in the construction sector, industrial applications, and transport sector has been on the rise and special steel usage in engineering industries such as power generation, petrochemicals and fertiliser industry is also growing. India has retained its position as the 5th largest producer in 2010 and recorded a growth of 11.3 per cent as compared to India has also emerged as the largest sponge iron/direct reduced iron (DRI) producing country in the world in 2010, a rank it has held on since Sponge iron production grew at a CAGR of 11 per cent to reach a level of million tonne (MT) in as compared to MT in India is expected to become the second largest producer of steel in the world by , on account of growing steel demand, rich resources base of iron ore, skilled manpower and vast experience of steel making and the huge capacity expansion planned and being executed in the steel sector. 14

15 With the expanding consumer market, Indian steel industry is likely to receive huge domestic and foreign investments. Nearly 222 memorandums of understandings (MoUs) for planned capacity of around 276 MT have been signed between the investors and various State Governments, mostly in Orissa, Jharkhand, Chhattisgarh and West Bengal. India has recorded a growth of over 8.6 per cent, producing 6.35 MT of steel in March 2011 as against 5.85 MT in the corresponding month in 2010, according to World Steel Association (WSA). Steel exports has increased by 17.3 per cent as it reached an estimated 2.46 MT, while steel imports were at an estimated 5.36 MT, a growth of 2.8 per cent in Production Crude steel production was registered at MT during April-Dec 2010 in the country as per Joint Plant Committee (JPC). The production is expected to be nearly 110 MT by Crude steel production grew at a compound annual growth rate (CAGR) of 8.4 per cent during the five years, to The crude steel performance accounted for 31 per cent of the total crude steel production in the country during , contributed largely by the strong trends in growth of the electric route of steel making, particularly the induction furnace route, which was a key driver in the growth of the segment. In case of total finished steel (alloy + non-alloy), production for sale was recorded at MT, a growth of 7.9 per cent during Apr-Dec Steel Authority of India (SAIL) Ltd has planned to enhance its hot metal production capacity from the level of million tonnes per annum (MTPA) to MTPA under its current phase of expansion and modernisation which is expected to be completed by financial year In the next phase, SAIL would increase its capacity further to MTPA.The indicative investment for current phase is about US$ billion. Additionally, approximately US$ 2.21 billion has been earmarked for modernisation and expansion of SAIL Mines. 15

16 NMDC Ltd plans to increase the production of iron ore from the present level of about 24 MT to 40 MT by Besides, setting up a 3 MTPA Integrated Steel Plant at Nagarnar in Chhattisgarh. The environmental clearance for the plant has been accorded by Ministry of Environment and Forests (MoEF). Consumption The Indian steel industry has been on a high-growth trajectory led by buoyancy in sectors such as infrastructure and construction, oil and gas and automobiles. The demand for steel is expected to further increase with major international automobile manufacturers setting manufacturing facilities in India. The consumption of steel domestically was recorded at MT, indicating further strengthening of demand during Apr-Dec The consumption of steel in the country has shown an increase of 10.3 per cent during April 2010 to January 2011 as compared to the same period of previous year. Major Developments The Indian steel market has witnessed the announcements of mega expansion plans from leading domestic producers in the form of greenfield and/or brownfield projects. Furthermore, with an expanding consumer market, the steel industry in India is likely to receive huge domestic and foreign investments. Posco, South Korea, plans to set up a 12 MT integrated steel plant in Orissa. Mittal Group's announced plans to set up their 12 MT integrated steel unit in Orissa. Tata Steel Ltd (TSL) has taken over US$ 12 billion Anglo-Dutch giant Corus Group Plc, transforming the former into a significant global steel producer, which may well be regarded as a benchmark even in the history of the Indian steel industry. Bhilai Steel Plant (BSP), the flagship entity of the Steel Authority of India Limited (SAIL), has secured a fresh order of exporting rails to Sri Lanka. The order of about 14,000 tonnes is for the UIC-60 grade of rails. Earlier, the company had received an order to supply 6,500 tonnes of rails to Sri Lanka. 16

17 The Essar Group, through Essar Africa Holdings Ltd (EAHL), has bought 54 per cent stake in Zimbabwe s state-owned steelmaker, Zisco. The total deal is valued at US$ 750 million. The State Level Single Window Clearance Authority (SLSWCA) in Orissa has cleared four investment proposals in the steel sector worth US$ million. Orissa through its nodal agency for land acquisition, Industrial Infrastructure Development Corporation of Orissa Ltd (Idco), has allotted acres of land to steel companies that have signed memorandum of understanding (MoU) with the State. The steel sector in Orissa has already recorded an investment of US$ billion till the end of December Tata Steel Ltd (TSL) and Nippon Steel Corporation (NSC) have signed a joint venture (JV) agreement to setup India's first continuous annealing and processing line (CAPL) for the production of 600,000 tonnes per annum of automotive cold-rolled steel at Jamshedpur, India. TSL will hold 51 per cent and NSC will hold 49 per cent of equity capital of the JV Company. The project will be set up at a capital cost of approximately US$ million and is expected to come on stream in NMDC Ltd has signed a pact with Russian steel and mining major Severstal to set up a 5 MTPA steel plant in Karnataka as part of a strategy that aims to boost the company's revenue by increasing presence in value added product chain. It has also set up a 3 MTPA integrated steel plant at Nagarnar, Chhattisgarh, which is likely to be commissioned in It has also set up a 3 MTPA integrated steel plant at Nagarnar, Chhattisgarh, which is likely to be commissioned in Essar Steel has commissioned a state-of-the-art Compact Strip Production (CSP) mill with a capacity of 3.5 MTPA. The CSP mill is a part of the company's expansion plans of raising the steel production capacity at Hazira at a cost of US$ 3.03 billion. The company has also commissioned two iron making units a blast furnace with a capacity of 1.73 MTPA and a DRI unit of 1.74 MTPA, a conarc furnace of 2.5 MTPA, besides commissioning India s first 5-metre wide plate mill with a capacity of 1.5 MTPA and a pipe mill with an annual capacity of 0.6 MTPA. 17

18 Sesa Goa, a Vedanta Group company, has acquired the assets of Bellary Steel and Alloys (BSAL) for US$ million in a competitive bidding process conducted by Industrial Financial Corporation of India (IFCI) Ltd. JSW Steel plans to infuse US$ million in Ispat industries in the next 2-3 years. JSW Steel plans to invest US$ billion over the next 10 years to ramp up capacity from 7.8 to 32 MTPA through greenfield and brownfield projects. Government Initiatives The current policy regime allows 100 per cent foreign domestic investment (FDI) in steel sector, as per Mr Beni Prasad Verma, Minister of State for Steel (Independent Charge). Some multinational steel companies like POSCO and Arcelor Mittal have signed MoU with respective to State Governments to set up steel production units in the country. The total proposed capacity under FDI is approximately 45 MT. Some of the initiatives undertaken by the Indian Government in the Eleventh Five Year Plan ( ) to promote the steel sector include: The Planning Commission has approved a total outlay of US$ 9.5 billion for the development and promotion of the iron and steel sector. The scheme for the promotion of research and development in the iron and steel sector has been approved with a budgetary provision of US$ 24.6 million to initiate and implement the provisions of the scheme. National Steel Policy 2005 is under review and the process for drafting a 'National Steel Vision' has since been initiated. Five year strategy paper has been prepared for promotion of Steel sector in the country. Moreover, in the Union Budget , the Government has allocated US$ 37.4 billion to the infrastructure sector and has increased the allocation for road transport by 13 per cent to US$ 4.3 billion which will further promote the steel industry. Ministry of Steel in association with United Nations Development Programme (UNDP) is carrying out a project on Removal of Barriers to Energy Efficiency Improvement in 18

19 Steel Re-rolling Mill Sector in India at an estimated cost of US$ million. The project seeks to reduce greenhouse gas emissions by providing technical assistance to small and medium sized steel re-rolling mills in the country to enable them to adopt more energy efficient and environmentally friendly technologies. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates 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. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 19

20 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods D. Ashakirankumar Automobile A. Rajesh Babu FMCG H.Lavanya Oil & Gas T.Joshna Devi Diversified Dheeraj Bhatia Diversified Manoj kotian Diversified Nimesh Gada Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com 20

Monnet Ispat SYNOPSIS. Target Price: Rs Date: Sep 30 th 2011 BUY

Monnet Ispat SYNOPSIS. Target Price: Rs Date: Sep 30 th 2011 BUY Monnet Ispat Ltd Result Update: Q1 FY 12 C.M.P: Rs.490.00 Target Price: Rs.559.00 Date: Sep 30 th 2011 BUY Stock Data: Sector: Steel Face Value Rs. 10.00 52 wk. High/Low (Rs.) 682.00/449.00 Volume (2 wk.