Reliance Securities has maintained 'Buy' on JSW Steel (JSTL) after the company declared its first quarter results. The stock broker fixed price target to Rs 1,314.
Commenting on the results, Reliance Securities said, ''JSTL posted results which was marginally above our estimate due to higher than expected sales volume. On a standalone basis, EBITDA fell by 39% yoy and 10% qoq to Rs 15 billion (our estimate Rs 13.7 billion). Steel sales volume at 3.11 million tons increased 8% yoy and 1.6% qoq (our estimate 3.02 million tons). Notably, sales volumes were at the highest level ever touched in 1QFY despite demand for domestically produced steel falling by 0.4% yoy in 1QFY16.
Domestic Steel sales grew by 27% yoy to 2.66 million tons, while share of exports in total sales declined to 15% and stood at 0.45 million tons during the quarter. Historically, exports accounted for ~20% of the company’s sales. We believe that this quantum jump in domestic sales was at the cost of realizations, which fell at a faster than anticipated pace at19% yoy and 9% qoq to Rs 32,566/tonne (our estimate Rs 34,250/tonne). APAT at Rs 1.8 billion (down 78% yoy; 40% qoq) was higher than our estimate (loss of Rs 335 million) due to lower interest and tax expenses both on a yoy and qoq basis.''
Commenting on the investment rationale, Reliance Securities said, ''Going forward, while EBITDA/tonne in the current quarter was at a 24-quarter low; we continue to remain optimistic on the company’s future performance despite pressure on steel prices, due to its non-integrated business model. Margins are expected to recover as iron ore and coking coal prices ease with a lag. This along with expected recovery in domestic steel demand and expected anti-dumping actions against imports will result in steel prices stabilizing. We maintain Buy recommendation with a target price of Rs 1,314.''
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