Steel price declines hurt margins: JSW Steels standalone revenues for 2QFY2016
come in at Rs9,653cr, in line with our estimate of Rs9,345cr. Raw Material expenses
for the quarter, at ~Rs5,458cr, are 2.5% below our expectation, led by decline in
iron ore and coking coal prices. The EBITDA however declined by 40% yoy, owing
to a sharp decline in steel prices.
Strong performance of subsidiaries: During the quarter, Coated Products’
revenues came in ahead of our expectations at Rs1,927cr on account of higher
realizations, while the segment’s EBITDA rose by 5.3% yoy to Rs102cr as against
our expectations of Rs60cr. The company’s Chilean operations posted an EBITDA
loss of $0.48mn as against a loss of $1.76mn in 2QFY2015, which is in line with
the guidance. The company’s plate and pipe mill business in the US reported an
EBITDA loss of $3.1mn, lower than our expectation of a EBITDA loss of $8.5mn.
Outlook: The company’s results for the quarter are marginally better than our
expectations, but the outlook on steel prices continues to remain weak. Pressure
from imports and slowdown in China remain key concerns for the domestic steel
industry. At the current price of Rs906, the stock trades at 7x FY2017 EV/EBITDA;
we retain our Neutral rating on the stock.

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