JSW Steel reported in-line results, with standalone EBITDA coming in marginally (c2.1%) above our estimates. For India operations, the impact of decline in realizations (down cR1,954/t q/q) was offset by the correction in raw material prices (lower iron ore and coal prices). Accordingly, standalone EBITDA/t improved marginally to R4,908/t (up c1.4% sequentially). Consolidated EBITDA was c5.7% above our estimate due to improved performance from coated products and Amba River coke subsidiary.
While we expect JSW to benefit from lower raw material prices, we believe pressure on domestic steel prices is expected to continue in the short term despite the imposition of safeguard duty. We remain Equal Weight (EW). Q2FY16 highlights: Management stated that production in 2Q was impacted due to the blast furnace shutdown at Vijayanagar. In line with its strategy, the company moderated exports to c10% of total sales, with retail sales growing by c80% y/y (c35% of domestic sales).
Management stated JSW’s steel capacity would increase up to c18mt (from c14mt presently) by CY15-end. The Vijayanagar unit will see expansion of 2mt, along with 1.5mt of capacity addition at Dolvi. Share of domestic iron ore is expected to increase with improving domestic supply (Karnataka mines re-starting).
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