ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 29 July 2019 | 1

Current Reco : HOLD 1QFY20 RESULT REVIEW

Previous Reco
CMP
: HOLD
: INR250
JSW Steel
Target Price : INR267 Higher subsidiary losses lead to miss on EBITDA
Potential Return : 7% JSW Steel's Q1FY20 consolidated EBITDA at ~INR37.2bn was 8% below our
estimates primarily on account of higher than expected losses in its foreign
https://www.euromoney.com/Brokers subsidiaries. Standalone net revenues came in line with estimates at
Asiamoney Brokers’ Poll 2019
https://www.euromoney.com/Brokers ~INR175bn, down 7.7% YoY and 11% QoQ. Standalone steel volumes came
https://www.euromoney.com/Brokers
P Vote for ANTIQUE
https://www.euromoney.com/Brokers
https://www.euromoney.com/Brokers in at ~3.75MT, down 2% YoY and 12.6% YoY impacted by subdued steel
https://www.euromoney.com/Brokers demand. Standalone EBITDA at ~INR37.3bn was broadly in line with our
https://www.euromoney.com/Brokers
Voting closes on 16th August
https://www.euromoney.com/Brokers estimates and down 22.7% YoY and 14.2% QoQ. Standalone EBITDA/ton
stood at ~INR9,936, down 21% YoY primarily due to lower realizations.
Pallav Agarwal Consolidated revenue came in at ~INR194bn, down 2.7% YoY and 11.1%
+91 22 4031 3411
QoQ. Consolidated EBITDA stood at ~INR 37.2bn, 8% below our estimates on
pallav.agarwal@antiquelimited.com account of higher than expected losses in its foreign subsidiaries and
inventory write-down. The US based Ohio HR coil manufacturing facility
Vikrant Gupta reported an EBITDA loss of ~USD36mn while the rolled long products
+91 22 4031 3429 manufacturing facility in Italy reported an EBITDA loss of ~EUR4.2mn.
vikrant.gupta@antiquelimited.com Consolidated PAT came in at ~INR10.3bn, down 56.6% YoY and 32.5% QoQ
due to lower EBITDA, higher interest costs and higher effective tax rates.
Market data Standalone steel volumes decline 2% YoY and 12.6% QoQ; FY20 guidance stands at ~16MT
Sensex : 37,883
Steel volumes at 3.75MT were down 2% YoY and 12.6% QoQ due to weak domestic demand.
Sector : Metals Domestic volumes at 3.1MT declined 7.7% YoY due to weaker economic activity and lack of
Market Cap (INRbn) : 603.6 credit. The automotive segment sales at 0.53 MT declined by 14% YoY impacted by the
Market Cap (USDbn) : 8.742 weakness in domestic auto sales. The management has however maintained its guidance for
O/S Shares (m) : 2,417.2 FY20 production and sales volumes at 16MT. A better H2FY20 is expected on the back of
52-wk HI/LO (INR) : 428/247 pickup in major infrastructure projects as well as revival in demand from automotive sector as
the festive season sets in and pre- buying is seen ahead of BS VI norms.
Avg Daily Vol ('000) : 5,871
Bloomberg : JSTL IN Steel realizations hold up in Q1FY20; expected to decline going ahead
Source: Bloomberg Blended steel realizations at ~INR 45,733/ton, were down 5.1% YoY but up 1.7% QoQ
Valuation despite a decline in spot steel prices during the quarter. Hedging in exports along with
commissioning of tinplate lines at Tarapur and galvalum products led to better than expected
FY19 FY20e FY21e realizations during the quarter. We expect steel realizations to moderate going ahead as the
EPS (INR) 31.6 18.9 23.4 full impact of decline in steel prices during May-June will start getting reflected next quarter.
P/E (x) 7.9 13.2 10.7 Blended coking coal cost for the company was at USD197/ton with the management expecting
P/BV (x) 1.7 1.6 1.5 a decline of USD4-5/ton in the following quarter. We expect steel spreads to moderate
EV/EBITDA (x) 5.6 7.5 6.6
further from the existing levels of ~INR10,000/ton with a drop in steel realizations going
ahead partially offset by cost savings initiatives like higher proportion of captive iron ore and
Dividend Yield (%) 1.6 1.2 1.2
commissioning of coke oven batteries.
Source: Company, Antique
Subsidiaries deliver a subdued performance in the quarter
Returns (%)
Losses at the newly acquired facilities in US and Italy increased QoQ with the HR coil facility
1m 3m 6m 12m at Ohio reporting an EBITDA loss of ~USD36mn (includes inventory write-down of USD19mn)
Absolute (10) (15) (9) (20) as against USD28mn last quarter while the Italy facility reported an EBITDA loss of ~EUR4mn
Relative (6) (12) (14) (22) as against ~EUR3mn last quarter. With both the facilities currently in ramp up phase the
Source: Bloomberg subsidiaries are likely to be loss making in the short term with the management expecting a
breakeven only towards the end of FY20. The US plate and pipe mill operations reported an
Shareholding pattern EBITDA of USD 2mn down from USD5.8mn last quarter, as inventory losses were booked
here as well on account of steep drop in steel prices in US during the quarter. The coated
Promoters : 42% products division posted sales volumes of 0.45mn tons and an EBITDA of ~INR1.7bn against
Public : 57% ~INR0.9bn last quarter.
Others : 1%
Net debt levels inch up in Q1FY20, capex guidance maintained at ~INR157bn for FY20
Source: Bloomberg Consolidated net debt stood at INR478bn (excluding acceptances of USD1.5bn) at the end
Price performance vs Nifty of Q1FY20 as against INR460bn (excluding acceptances of USD1.5bn) at the end of
Q4FY19. The capex guidance for FY20 stood at ~INR157bn out of which ~INR28bn was
140 spent during the quarter.
120
100 Valuations and outlook
80 Steel volume growth in FY20 would be constrained by the current capacity of 18MTPA and
60 weakness in domestic demand while current spreads could be impacted by weakness in
Jul-18 Nov-18 Mar-19 Jul-19 international steel prices. Overseas acquisitions would remain a drag on profitability till the
JSW Steel NIFTY
operations are ramped up. We maintain our target price at INR 267 per share at an unchanged
target multiple of 6.5xFY21E EV/EBITDA and adding the FY21E CWIP at 0.5xbook. We
Source: Bloomberg, Indexed to 100 maintain our HOLD rating on the stock.
ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 29 July 2019 | 2

Quarterly financials
Standalone INRm Q1FY20 Q1FY19 YoY (%) Q4FY19 QoQ (%)
Revenues 1,74,990 1,89,640 (7.7) 1,97,010 (11.2)
(Inc)/Dec in stock (7,590) (3,300) 130.0 14,260 (153.2)
Raw material consumed 99,820 1,00,910 (1.1) 93,210 7.1
Power & fuel 13,310 13,770 (3.3) 13,060 1.9
Staff costs 3,870 3,560 8.7 3,470 11.5
Other expenses 28,320 26,480 6.9 29,600 (4.3)
Total expense 1,37,730 1,41,420 (2.6) 1,53,600 (10.3)
EBITDA 37,260 48,220 (22.7) 43,410 (14.2)
Depreciation 8,060 8,190 (1.6) 8,650 (6.8)
EBIT 29,200 40,030 (27.1) 34,760 (16.0)
Other income 1,620 1,670 (3.0) 830 95.2
Net interest 9,630 8,660 11.2 9,560 0.7
Extraordinaries - - -
PBT 21,190 33,040 (35.9) 26,030 (18.6)
Tax 6,960 9,660 (28.0) 8,580 (18.9)
Net profit 14,230 23,380 (39.1) 17,450 (18.5)
Adjusted net profit 14,230 23,380 (39.1) 17,450 (18.5)

Key ratios
EBITDA margin (%) 21.3 25.4 (413.4) 22.0 (74.2)
EBIT margin (%) 16.7 21.1 (442.2) 17.6 (95.7)
Effective tax rate (%) 32.8 29.2 360.8 33.0 (11.6)

Key operating metrics Q4FY19 Q4FY18 YoY (%) Q3FY19 QoQ (%)
Crude steel production (MT) 4.24 4.11 3.2 4.17 1.7
Saleable steel volumes (MT) 3.75 3.83 (2.1) 4.29 (12.6)
Average realisation (INR/tonne) 45,733 48,211 (5.1) 44,904 1.8
EBITDA/tonne 9,936 12,590 (21.1) 10,119 (1.8)
Source: Company, Antique

Quarterly financials
Consolidated INRm 1QFY20 1QFY19 YoY (%) 4QFY20 QoQ (%)
Net sales 1,94,070 1,99,500 (2.7) 2,18,370 (11.1)
Other operating income 4,050 5,690 (28.8) 5,310 (23.7)
Net revenues 1,98,120 2,05,190 (3.4) 2,23,680 (11.4)
(Inc)/Dec in stock (10,530) (4,640) 126.9 16,940
Raw material consumed 1,14,150 1,06,770 6.9 1,03,820 9.9
Power & fuel 17,020 16,080 5.8 16,440 3.5
Staff costs 7,590 5,350 41.9 7,010 8.3
Other expenses 32,730 30,580 7.0 35,070 (6.7)
Total expense 1,60,960 1,54,140 4.4 1,79,280 (10.2)
EBITDA 37,160 51,050 (27.2) 44,400 (16.3)
Depreciation 10,260 9,050 13.4 10,840 (5.4)
EBIT 26,900 42,000 (36.0) 33,560 (19.8)
Other income 1,410 580 143.1 530 166.0
Net interest 10,420 8,870 17.5 10,460 (0.4)
Extraordinaries - - -
PBT 17,890 33,710 (46.9) 23,630 (24.3)
Tax 7,620 10,530 - 8,350 (8.7)
Net profit 10,270 23,180 - 15,280 (32.8)
Share of profit from associates (190) 210 (190.5) (330) (42.4)
Minority Interest (200) (270) (25.9) (280) (28.6)
Reported PAT 10,280 23,660 (56.6) 15,230 (32.5)
Adjusted PAT 10,280 23,660 (56.6) 15,230 (32.5)
Source: Company, Antique
 ANTIQUE STOCK BROKING LIMITED

-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0

-
-

2,000
4,000
6,000
8,000
10,000
12,000
14,000
10,000
20,000
30,000
40,000
50,000
60,000
Q2FY12
Q2FY12 Q2FY12 Q3FY12
Q3FY12 Q3FY12 Q4FY12

Source: Company, Antique

Source: Company, Antique
Source: Company, Antique
Q4FY12 Q1FY13
Q4FY12
Q1FY13 Q2FY13
Q1FY13
Q2FY13 Q3FY13
Q2FY13
Q3FY13 Q4FY13
Q3FY13 Q4FY13 Q1FY14
Q4FY13 Q1FY14 Q2FY14
Q1FY14 Q2FY14 Q3FY14
Q2FY14 Q3FY14 Q4FY14
Sales volume (MT)

Q3FY14 Q4FY14 Q1FY15

Q4FY14 Q1FY15 Q2FY15

EBITDA (INRm)
Q1FY15 Q2FY15 Q3FY15
Q3FY15
Q2FY15 Q4FY15
Q4FY15

Standalone EBITDA/tonne lower sequentially

Q3FY15 Q1FY16
Q1FY16
Q4FY15 Q2FY16 Q2FY16
Q1FY16 Q3FY16 Q3FY16
Q2FY16 Q4FY16 Q4FY16
Q1FY17

EBITDA INR per tonne

Q3FY16 Q1FY17
Sales volumes lower YoY impacted by subdued demand

Q4FY16 Q2FY17 Q2FY17

Q3FY17 Q3FY17
Q1FY17
Q4FY17 Q4FY17
Q2FY17
Standalone EBITDA declines YoY impacted by lower realizations

Q1FY18 Q1FY18
Q3FY17 Q2FY18 Q2FY18
Q4FY17 Q3FY18 Q3FY18
Q1FY18
YoY grow th % RHS

Q4FY18 Q4FY18
FROM THE RESEARCH DESK

Q2FY18 Q1FY19 Q1FY19

Q3FY18 Q2FY19
YoY (%) - RHS

Q2FY19
Q4FY18 Q3FY19 Q3FY19
Q1FY19 Q4FY19 Q4FY19
Q1FY20 Q1FY20
Q2FY19
-

Q3FY19
-

50.0

Q4FY19
100.0
150.0
200.0
10.0
20.0
30.0
40.0
50.0

(50.0)

(100.0)
(20.0)
(10.0)

Q1FY20
29 July 2019 | 3
ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 29 July 2019 | 4

SoTP valuations
FY21e EBITDA - INRm 1,73,051
Target multiple 6.5
Target EV - INRm 11,24,833
Less: Net debt - INRm 5,40,286
Add: FY21e CWIP @ 0.5x book -INRm 59,840
Target market capitalization- INRm 6,44,387
Target price- INR per share 267
Source: Company, Antique
ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 29 July 2019 | 5

Financials
Profit and loss account (INRbn) Cash flow statement (INRbn)
Year ended 31 Mar FY17 FY18 FY19 FY20e FY21e Year ended 31 Mar FY17 FY18 FY19 FY20e FY21e
Revenues 556 702 848 795 866 PBT 51 79 112 67 83
Expenses 434 554 658 647 693 Depreciation 34 34 40 43 49
EBITDA 122 148 190 148 173 Interest 38 37 39 41 45
Depreciation & amortisation 34 34 40 43 49 (Inc)/ Dec in working capital -16 5 -32 39 -15
EBIT 87 114 149 105 124 Tax paid -17 -15 -36 -22 -27
Other income 2 2 2 4 4 CF from operating activities 90 139 123 168 136
Interest expense 38 37 39 41 45 Capex 126 -42 -146 -150 -120
Profit before tax 51 79 112 67 83 (Inc)/ Dec in Investments -7 -1 -4 1 0
Extraordinaries 0 -3 0 0 0 CF from investing activities 118 -43 -151 -149 -120
Tax 17 15 36 22 27 Inc/ (Dec) in debt 20 -48 115 4 43
Profit after tax 35 61 76 46 56 Dividends & Interest paid -44 -46 -51 -50 -54
Minorities and share of associates 1 1 1 0 0 Others -176 -6 15 -6 -5
Rep. PAT after minority/asso. 35 62 76 46 57 CF from financing activities -200 -100 79 -51 -16
Adj. PAT after minority/asso. 35 65 76 46 57 Net cash flow 8 -4 51 -32 0
EPS (INR) 14.6 26.8 31.6 18.9 23.4 Add: Opening balance 7 15 11 62 30
Closing balance 15 11 62 30 30
Balance sheet (INRbn)
Year ended 31 Mar FY17 FY18 FY19 FY20e FY21e Growth indicators (%)
Share Capital 2 2 2 2 2 Year ended 31 Mar FY17 FY18 FY19 FY20e FY21e
Reserves & Surplus 224 278 346 371 409 Revenue 32.8 26.3 20.7 (6.2) 9.0

Networth 226 280 348 373 412 EBITDA 100.5 21.5 28.1 (22.0) 17.1

Debt 455 407 523 527 570 PAT 154.7 83.9 17.9 (40.1) 23.9

Minority Interest -2 -5 -5 2 6 EPS 154.7 83.9 17.9 (40.1) 23.9

Deferred tax/ other liabilities 31 26 38 38 38

Valuation
Capital Employed 710 709 904 939 1,025
Year ended 31 Mar FY17 FY18 FY19 FY20e FY21e
Gross Fixed Assets 655 681 768 917 1,037
P/E (x) 17.2 9.3 7.9 13.2 10.7
Accumulated Depreciation 77 110 150 193 241
P/BV (x) 2.7 2.2 1.7 1.6 1.5
Net Assets 579 571 618 725 796
EV/EBITDA (x) 8.6 6.7 5.6 7.5 6.6
Capital work in progress 44 60 119 120 120
EV/Sales (x) 1.9 1.4 1.3 1.4 1.3
Investments 14 15 19 18 18
Dividend Yield (%) 0.9 1.3 1.6 1.2 1.2
Liquid Investments 3 3 1 0 0
Current Assets Loans & Advances
Financial ratios
Inventory 114 126 145 173 183
Year ended 31 Mar FY17 FY18 FY19 FY20e FY21e
Debtors 41 47 72 69 76
RoE 16.2 25.6 24.3 12.7 14.4
Cash & Bank 15 11 62 30 30
RoCE 9.1 13.6 13.6 8.5 9.3
Loans & advances and others 66 84 105 51 65
Debt/Equity (x) 1.9 1.4 1.3 1.3 1.3
Current Liabilities & Provisions
EBIT/Interest (x) 2.3 3.1 3.8 2.5 2.7
Creditors 168 208 240 245 260
Provisions 3 3 4 9 10 Margins (%)
Net Current Assets 65 56 140 69 84
Year ended 31 Mar FY17 FY18 FY19 FY20e FY21e
Goodwill on consolidation 9 7 8 8 8
EBITDA 21.9 21.1 22.4 18.6 20.0
Application of Funds 710 709 904 939 1,025
EBIT 15.7 16.2 17.6 13.2 14.4
PAT 6.3 9.2 9.0 5.8 6.5
Per share data*
Source: Company Antique
Year ended 31 Mar FY17 FY18 FY19 FY20e FY21e
No. of shares (Mn) 2,417 2,417 2,417 2,417 2,417
BVPS (INR) 93.7 115.8 143.9 154.3 170.3
CEPS (INR) 28.8 40.8 48.3 36.6 43.6
DPS (INR) 2.3 3.2 4.1 3.0 3.0

Source: Company, Antique * on fully diluted number of shares

ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 29 July 2019 | 6

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