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The worst seems over for JSW Steel. Analysts believe most of the issues plaguing the company are in the process of getting resolved and its earnings trajectory will only improve. Even as demand remained weak in the country, JSW Steel has managed to grow consolidated net sales by seven per cent year-on-year (y-o-y) to Rs 13,692 crore. The growth in sales has been driven by a strong 11 per cent growth in crude steel production, even as steel production in India grew 2.6 per cent. While steel consumption in the country grew 0.9 per cent during the quarter, JSW Steel’s witnessed demand growth of 10 per cent.
The company’s sales volume stood at 3.07 million tonnes during the September quarter, higher than analyst estimates. The company also stated now 33 per cent of its volume are value-added products. The higher share of value-added products in the total volumes has been achieved through exports. The company exported 790 tonnes during the quarter. Even as Chinese exports are flooding the world markets, JSW claims its exports would not be affected, as it is focusing on value-added products. After the festive season, the company believes demand for steel would pick up in the domestic market, too, as the auto sector is doing well.
According to analysts, the company’s Ebitda (earnings before interest, tax, depreciation and amortisation)/tonne of steel in the standalone business during the quarter was Rs 8,534/tonne, against Rs 7,137/tonne a year ago. Sequentially, Ebitda/tonne remains flat after adjusting for the one-time provisions. Analysts believe higher iron ore costs may have impacted Ebitda/tonne. The company has imported 1.7 million tonne of iron ore in the first six months of FY15 and this is expected to increase, as availability of ore has tightened. Analysts believe the stock is among the best placed in the steel sector, as its earnings trajectory is expected to improve further. Goutam Chakraborty of Emkay Global says the stock trades at 4.75x EV/Ebitda, which looks cheap given the potential it has.
