healthy realisations boost...

February 2, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Healthy realisations boost profitability…. JSW Steel reported healthy Q3FY17 numbers amid demonetisation

and a sharp increase in raw material prices. The better-than-expected performance was primarily driven by healthy realisations QoQ

Sales volume for the quarter came in at 3.64 million tonne (MT), a tad higher than our estimate of 3.6 MT. Gross consolidated topline for the quarter was at | 15312.34 crore. After adjusting for excise duty, net operating income (consolidated) was at | 14012.6 crore (up 61.9% YoY, 5.9% QoQ) higher than our estimate of | 13251.6 crore. The healthy increase in revenues during the quarter was also on account of the miscellaneous income of ~| 825 crore (Q2FY17: ~| 400 crore) pertaining mostly to the sale of coal and gases to JSW Energy

Apart from healthy realisations, increased topline, inventory gains of ~| 215 crore further supported the EBITDA/tonne that was at | 7717/tonne, up 9.0% QoQ (Q1FY17: | 9276/tonne, Q2FY17: | 7077/tonne, Q3FY16: | 3443/tonne) and higher than our estimate of | 5000/tonne

Subsequently, consolidated EBITDA was at | 2866.9 crore (down 3.1% QoQ, up 193.4% YoY). Ensuing consolidated PAT came in at | 730.1 crore

Maintains guidance of15 MT steel sales for FY17E...

On the back of completion of capacity enhancements undertaken in H2FY16, JSW Steel posted strong volume growth of ~22% YoY in 9MFY17. Sales volume in the aforesaid period was at 10.8 MT against 8.8 MT in 9MFY16. For FY17E, JSW Steel has guided crude steel production, saleable steel sales guidance of 15.75 MT, 15 MT respectively, implying strong sales volume growth of ~24%. We have modelled sales volume on the same lines with 15 MT for FY17E, 16 MT for FY18E and 17 MT for FY19E. Steel sales volume for FY16 was at 12.1 MT.

Access to captive iron ore mines to ensures partial integration…

JSW Steel has bagged five iron ore mines in the category C mines auctioned by the Karnataka government. The development augurs well over a longer term horizon as it would ensure partial raw material security. The mineable content from these mines is estimated to be around ~93.0 MT. The annual capacity of these mines together is ~4.7 MT. The mines once operational would cater to ~15-20% of JSW Steel’s iron ore requirement captively. Currently the company is in process of acquiring approvals for the mines. The management envisages commercialising two mines with a capacity of ~0.7 MT by the April 2017. The remaining three mines (~3.9 MT) will be made operational by the end of December 2017.

Healthy performance marked by healthy realisations; maintain HOLD…

JSW Steel reported a healthy performance for Q3FY17 on the back of a healthy increase in realisations QoQ. On account of the healthy increase in steel realisations, we maintain the EBITDA/tonne of | 8000/tonne for FY17E while we revise upward the same for FY18E to | 8250/tonne (from earlier 8000/tonne). We further introduce FY19E EBITDA/tonne at | 8500/tonne. On the back of a healthy traction in volumes, we maintain our sales volume assumption of 15 MT for FY17E, 16 MT for FY18E and introduce sales volume of 17 MT for FY19E. We value the stock at 6.0x FY19E EV/EBITDA and arrive at a target price of | 200. We have a HOLD recommendation on the stock.

Rating matrix

Rating : HoldTarget : | 200Target Period : 12 monthsPotential Upside : 4%

What’s Changed?

Target Changed from | 175 to | 200

EPS FY17E Changed from | 14.6 to | 15.1 EPS FY18E Changed from | 16.0 to | 17.2 EPS FY19E Introduced at | 19.5 Rating Unchanged

Quarterly Performance (Consolidated)

Q3FY17 Q3FY16 YoY (%) Q2FY17 QoQ (%)Adj. Rev. 14,012.6 8,653.7 61.9 13,227.8 5.9 EBITDA 2,866.9 977.1 193.4 2,958.5 (3.1) EBITDA (%) 20.5 11.3 917 bps 22.4 -191 bpsPAT 730.1 (709.1) LP 726.5 0.5

Key Financials

(| Crore) FY16 FY17E FY18E FY19ENet Revenues 41878.9 57526.2 67385.8 73840.0EBITDA 6073.0 12728.1 13856.7 15096.8Adj Net Profit 1383.5 3654.2 4169.3 4711.2Adj EPS (|) 5.7 15.1 17.2 19.5

Valuation summary

FY16 FY17E FY18E FY19E

PE (x) NA 12.8 11.2 9.9

Target PE (x) NA 13.2 11.6 10.3

EV/EBITDA (x) 14.0 7.0 6.6 5.9

P/BV (x) 2.2 2.0 1.7 1.5Adj RoNW (%) 6.4 15.8 15.5 15.1Adj RoCE (%) 4.8 13.5 14.0 15.1

*The ratios are calculated post the stock split of 10:1

Stock data Particular AmountMarket Capitalisation | 46648 crore Debt-Cons. (FY16) | 39195 croreCash Cons. (FY16) | 734 croreEV | 85109 crore52 week H/L | 200 / 95Equity capital | 241.72 croreFace value | 1

Price performance (%) Return % 1M 3M 6M 12MJSW Steel 21.8 19.5 18.3 87.5SAIL 28.9 22.7 35.4 48.5Tata Steel 18.4 14.4 30.4 85.4

Research Analyst

Dewang Sanghavi [email protected]

Akshay Kadam [email protected]

JSW Steel (JSWSTE) | 193

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis Q3FY17 Q3FY17E Q3FY16 YoY (%) Q2FY17 QoQ (%) Comments

Adjusted Revenue(net of excise)

14,012.6 13,251.6 8,653.7 61.9 13,227.8 5.9The topline came in higher than our estimates on account of healhtyrealisations QoQ and miscellaneous income to the tune of ~| 825 crorepertaining to sale of coal and gases to JSW Energy

Other Income 33.3 30.0 27.2 22.4 29.6 12.5Employee Expense 425.2 485.7 356.7 19.2 432.2 -1.6 Employee expense came in lower than our estimateRaw Material Expense 7,366.1 7,666.0 4,875.6 51.1 6,583.0 11.9 Raw material expense came in lower than our estimatePower & Fuel Expense 1,258.6 1,261.4 689.8 82.5 1,211.9 3.9Other operating Expenses 2,095.8 2,038.4 1,754.7 19.4 2,042.2 2.6

EBITDA 2,866.9 1,800.1 977.1 193.4 2,958.5 -3.1EBITDA came in higher than our estimate owing to healhty realisation and inventory gains of ~| 215 crore

EBITDA Margin (%) 20.5 13.6 11.3 917 bps 22.4 -191 bps EBITDA margin came in higher than our estimateDepreciation 914.6 820.0 830.2 10.2 891.5 2.6Interest 920.1 930.0 891.0 3.3 964.6 -4.6Exceptional Item - 0.0 2,122.1 -100.0 0.0 NAPBT 1,065.5 80.1 -2,839.1 -137.5 1,132.0 -5.9Tax Outgo 351.1 26.4 -2,024.5 -117.3 473.3 -25.8PAT 714.5 53.7 -814.6 -187.7 658.7 8.5Minority Interest, Share of Associate &Extra Ordinary Item

(15.6) -5.4 -105.5 -85.2 -67.8 -77.0

PAT for the Group 730.1 59.0 -709.1 -203.0 726.5 0.5 PAT came in higher than our estimateKey MetricsSteel Sales (MT) 3.6 3.6 2.6 40.0 3.8 -4.2 Sales volume came in tad higher than our estimateStandalone EBITDA/tonne (|/ton 7717 5000 3443 124.1 7077 9.0

Source: Company, ICICIdirect.com Research Change in estimates

FY19E(| Crore) Old New % Change Old New % Change Introduced CommentsRevenue 57,503 57,526 0.0 66,889 67,386 0.7 73,840 Maintained estimates for both years, introduced for FY19EEBITDA 12,512 12,728 1.7 13,418 13,857 3.3 15,097 Upward revised for FY17E & FY18E, introduced FY19E

EBITDA Margin (%) 21.8 22.1 37 bps 20.1 20.6 50 bps 20.4

EBITDA (|/tonne) 8000 8000 0.0 8000 8250 3.1 8500 Upward revised for FY18E, introduced FY19E

PAT 3525 3654 3.7 3873 4169 4711 Upward revised for FY17E both FY18E, introduced FY19E

EPS (|) 14.6 15.1 3.7 16.0 17.2 7.7 19.5

FY17E FY18E

Source: Company, ICICIdirect.com Research, *-Standalone entity Assumptions

E

FY16 FY17E FY18E FY19E FY17E FY18ETotal Steel Sales (MT) 12.1 15.0 16.0 17.0 15.0 16.0 Introduced FY19EEBITDA/tonne (|/tonne) * 4,725 8,000 8,250 8,500 8,000 8,000 Upward revised estimate for FY18E, introduced FY19E

CommentsEarlierCurrent

Source: Company, ICICIdirect.com Research, *-Standalone entity


Company Analysis JSW Steel augmented its steel producing capacity from 14.3 MT to 18.0 MT in FY16. The capacity of its Vijayanagar plant in Karnataka was increased to 12.0 MT from 10.0 MT. The plant capacity at Dolvi, Maharashtra was enhanced to 5.0 MT from earlier 3.3 MT (erstwhile Ispat Industries) while the plant capacity at Salem, Tamil Nadu was at 1 MT.

Maintains guidance of15 MT steel sales for FY17E...

On the back of completion of capacity enhancements undertaken in H2FY16, JSW Steel registered strong volume growth of ~22% YoY in 9MFY17. Sales volume during the aforesaid period came in at 10.8 MT against 8.8 MT in 9MFY17. For FY17E, JSW Steel has guided crude steel production and saleable steel sales guidance of 15.75 MT and 15 MT, respectively, implying strong sales volume growth of ~24%. We model the sales volume on same lines with 15 MT for FY17E, 16 MT for FY18E and 17 MT for FY19E. Steel sales volume for FY16 was at 12.1 MT.

Exhibit 1: Sales volume trend…

12.1

15.016.0

17.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0


milli

on to

nne

Source: Company, ICICIdirect.com Research

Exhibit 2: ..EBITDA/tonne to firm up, going forward

4725

8000 82508500

0

1000

2000

3000

4000

5000

6000

7000

8000

9000


|/to

nne


Access to captive iron ore mines to ensures partial integration…

In the recently concluded auctions of category C iron ore mines in Karnataka, JSW Steel has bagged five mines. The estimated resources in these five mines as per tender documents is ~111 million tonnes (MT). The mineable content from these mines is estimated to be around ~93.0 MT. The annual capacity of these mines together is at ~4.7 MT. The management will take all requisite steps to obtain letter of intent, all statutory clearances, execute Mine Development and Production Agreement (MOPA) and start mining operations. The management envisages commercialising two mines with a capacity of ~0.7 MT by the end of FY17. The remaining three mines (~3.9 MT) will be made operational by the end of December 2017. Currently the company is in process of acquiring approvals, the mines once operational would cater to ~15-20% of JSW Steel’s iron ore requirement captively. Exhibit 3: Mines where JSW has emerged as preferred bidder...

Sr. No Name of Mine Est. Resource (MT)

1 Ram Rao Paol 31.5

2 Tungabhadra Minerals Pvt Ltd 33.9

3 Tungabhadra Minerals Pvt Ltd 6.9

4 Hothur Traders 10.0

5 V S Lad & Sons 28.6 Source: Source: Department of Mines and Geology (Government of Karnataka), ICICIdirect.com Research


Elevated debt level remains area of concern

Post the merger with Ispat Industries, the debt level of JSW Steel has increased significantly. On a consolidated basis, at the end of Q3FY17, the net gearing was at 2.11x (2.15x at the end of Q2FY17) while net debt to EBITDA was at 4.02x (4.82x at the end of Q2FY17). On a standalone basis, at the end of Q2FY17, net gearing was at 1.72x (1.75x at the end of Q2FY17) while net debt to EBITDA was at 3.72x (4.41x at the end of Q2FY17).

Exhibit 3: Gross debt & net debt trend

3488

5

3919

5

4514

5

4764

5

4514

5

3297

1

3846

1

4451

5

4223

6

4259

8

05000

1000015000200002500030000350004000045000

FY15 FY16 FY17E FY18E FY19E

| cr

ore

Gross Debt Net Debt



Key takeaway from conference call

• Saleable steel volumes registered a decline on a QoQ basis of 5%. Liquidity issues post demonetisation resulted in a decline of ~12% in the retail segment. The decline in retail sales was covered by increased sales to OEM. Overall value added & special products (VASP) sales grew 38% YoY – CRCA ~43%, special longs ~23%, coated ~23%, overall VASP improved to 37% of total sales

• The net sales realisation during the quarter increased by ~| 3200-

3400/tonne compared to the previous quarter owing to the price hikes taken during the quarter

• Apart from the increase in realisations, the revenue increase also

accounts for | 825 crore miscellaneous income increased from | 400 crore in the previous quarter. The increase was mostly on account of sale of coal and gases to JSW Energy as the CPP in Vijayanagar was closed for maintenance

• Along with higher realisation, inventory gains of ~| 215 crore resulted

in higher-than-expected reported EBITDA • The blended coking coal cost during the quarter was at

~US$172/tonne. For Q4FY17, the same is expected to be ~US$220-225/tonne. Hard coking coal consists of 55-60% of the mix. The company continues to improve the coking coal mix used in production to control costs

• The company in the month of January has effectively increased the

flat product prices by ~US$30-35/tonne

• The management maintained the FY17 steel sales guidance of 15 MT • The management maintained the capex guidance of | 4300 crore for

FY17, of which it expended ~| 3300 crore during 9MFY17. The balance ~| 1000 crore is likely to be spent in Q4FY17

• The management indicated that two out of the five mines won in the

auctions will be operational by the end of April 2017. The company is in the process of obtaining approvals for same. The other three mines would be operational by the end of December 2017 for which the company has to apply for approvals afresh

• On inorganic growth, the management indicated that it continues to

evaluate opportunities in India and outside


• Performance of subsidiaries JSW Steel Coated Products During the quarter, JSW Steel Coated Products registered production (galvanised/galvalume products) volume of 0.43 MT and sales volume of 0.44 MT. The total income from operations and operating EBITDA for the quarter was at | 2437 crore and | 142 crore, respectively. Net profit after tax was at | 55 crore. US plate and pipe mill The US-based pipe and plate mill facility produced 42291 net tonnes of plates and 11585 net tonnes of pipes, reporting capacity utilisation of 18% and 8%, respectively, in Q3FY17. Sales volumes for the quarter were at 31009 net tonnes of plates and 11544 net tonnes of pipes. It reported an EBITDA loss of US$4.36 million for the quarter. JSW Industrial Gases Pvt Ltd In August 2016, the company acquired the entire shareholding of 74% of Praxair India Pvt Ltd in JSW Praxair Oxygen Pvt Ltd for a cash consideration of | 240 crore. As a result, JIGPL has become a wholly owned subsidiary of the company. The name of this entity has been changed to JSW Industrial Gases Pvt Ltd with effect from September 30, 2016.


Valuation JSW Steel reported a healthy performance in Q3FY17 on the back of a healthy increase in realisations QoQ. On account of a healthy increase in steel realisations, we maintain the EBITDA/tonne of | 8000/tonne for FY17E while we revise upward the same for FY18E to | 8250/tonne (from earlier | 8000/tonne). We further introduce FY19E EBITDA/tonne at | 8500/tonne. On the back of a healthy traction in volumes, we maintain our sales volume assumption of 15 MT for FY17E, 16 MT for FY18E and introduce sales volume of 17 MT for FY19E. We value the stock at 6.0x FY19E EV/EBITDA and arrive at a target price of | 200. We have a HOLD recommendation on the stock.

Exhibit 4: Target price calculation Particular Unit Value

EBITDA | crore 15097

EV/EBITDA Multiple x 6.0

Enterprise Value (EV) | crore 90581

Gross Debt | crore 45145

Cash & Cash Eq | crore 2909

Net Debt | crore 42236

Implied Market Cap | crore 48345

No of Shares crore 241.7

Target Price | 200


Exhibit 5: Valuation Matrix

Sales (| Crore)

Growth(% YoY)

EPS (|)Growth(% YoY)

PE (x)EV/EBIDTA

(x)P/ BV

(x)RoNW

(%)RoCE (%)

FY15 52971.5 3.4 76.3 -14.8 2.5 8.5 0.2 8.0 10.3FY16 41878.9 -20.9 5.7 PL NM 14.0 2.2 6.4 4.8FY17E 57526.2 37.4 15.1 164.1 12.8 7.0 2.0 15.8 13.5FY18E 67385.8 17.1 17.2 14.1 11.2 6.6 1.7 15.5 14.0FY19E 73840.0 9.6 19.5 13.0 9.9 5.9 1.5 15.1 15.1



Recommendation History vs. Consensus

10

40

70

100

130

160

190

220

250

Feb-17Nov-16Sep-16Jun-16Apr-16Jan-16Nov-15Aug-15Jun-15Apr-15Jan-15

(|)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

(%)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research Key events

Date Event

Feb-16 ICRA downgrades the long term credit rating of the company to ICRA AA- from ICRA AA and reaffirmed the short term rating at ICRA A1+Mar-16 CARE Ratings downgrades the long term credit rating of the company to CARE AA- from CARE AA, while reaffirming its short term rating at CARE A1+Apr-16 Fitch Ratings downgrades the credit rating of JSW Steel from BB+ to BBApr-16 Blast furnace at Dolvi recommissioned after being shut down for relining and modification in November 2015

Aug-16As per media sources, JSW Steel expresses interest in setting up a 10 MT steel plant in Odisha with an outlay of | 50000 crore. In the first phase, it will set up 4 MT steel plant later ramping up the same to 10 MT. The plan also includes setting up a slurry pipeline of 280 km with an outlay |1200-1500 crore, a 500 MW solar plant, a thermal power plant and a coal-mining processing facility

Sep-16As per media sources, domestic steel players raise steel product prices by |2500/tonne. Consequently, hot rolled steel prices were at | 39,000/tonne while cold rolled steel prices were at | 42000/tonne with effect from September 1

Oct-16 The board approves the fund raising plans up to | 2000 crore through issuance of non convertible debentures (NCDs).

Nov-16 JSW Steel indicates that the US Supreme Court has turned down a petition filed by JSW Steel's US based subsidiary in an anti-trust case

Dec-16As per media source, JSW Steel was planning to restart coking coal mining operations in US by March 2017 following the sharp increase in prices. The company owns nine coking coal mines with a cumulative resources of 123 million tonne (MT)

Dec-16The shareholders of JSW Steel have approved the subdivision of equity share of the company from face value of | 10 each to | 1 each. The company has fixed January 5, 2017 as the record date for the same

Source: Company, ICICIdirect.com Research Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m)1 Jindal Organisation 30-Sep-16 21.1 510.3 0.02 JFE Steel Corporation 30-Sep-16 - 362.6 0.03 Vividh Consultancy & Advisory Services Pvt. Ltd. 17-Nov-16 57.8 139.8 0.94 Sahyog Tradecorp Pvt. Ltd. 30-Sep-16 45.4 109.7 0.05 M. M. Warburg Bank (Schweiz) AG 30-Sep-16 45.0 108.7 0.06 Danta Enterprises Pvt. Ltd. 30-Sep-16 25.0 60.4 0.07 Virtuous Tradecorp Pvt. Ltd. 30-Sep-16 25.0 60.4 0.08 Gagandeep Credit Capital Pvt. Ltd. 30-Sep-16 19.0 46.0 0.09 Dimensional Fund Advisors, L.P. 31-Oct-16 17.2 41.5 -1.310 The Vanguard Group, Inc. 31-Dec-16 15.0 36.2 0.2

Source: Reuters, ICICIdirect.com Research

in (%) Dec-15 Mar-16 Jun-16 Sep-16 Dec-16Promoters 41.5 41.5 41.5 41.5 41.6FII 15.0 15.0 20.1 20.6 20.3DII 21.5 22.2 17.0 16.4 16.7Others 20.6 21.3 21.4 21.5 21.4

Recent Activity

Investor Name Value (M) Shares(M) Investor Name Value (M) Shares(M)Vividh Consultancy & Advisory Services Pvt. Ltd. 2.3 0.9 Jindal (Sajjan) -55.8 -23.3Acadian Asset Management LLC 1.1 0.4 Reynold Traders Pvt. Ltd. -43.4 -18.1JM Financial Asset Management Pvt. Ltd. 0.9 0.4 IDFC Asset Management Company Private Limited -8.0 -3.2The Vanguard Group, Inc. 0.5 0.2 Jindal (Sangita) -6.9 -2.9DSP BlackRock Investment Managers Pvt. Ltd. 0.3 0.1 Dimensional Fund Advisors, L.P. -3.3 -1.3

Buys Sells

Source: Reuters, ICICIdirect.com Research


Financial summary (Cons.)

Profit and loss statement (| crore)(Year-end March) FY16 FY17E FY18E FY19ETotal operating Income 41,878.9 57,526.2 67,385.8 73,840.0Growth (%) -20.9 37.4 17.1 9.6Raw Material Expenses 22,750.6 29,395.7 37,318.5 40,886.9Employee Expenses 1,568.0 2,028.7 2,405.8 2,941.6Power and Fuel Costs 3,665.9 4,941.6 5,038.9 5,695.9Mfg and Other expenses 7,821.3 8,432.1 8,765.9 9,218.7Total Operating Expenditure 35,805.9 44,798.0 53,529.1 58,743.2EBITDA 6,073.0 12,728.1 13,856.7 15,096.8Growth (%) -35.4 109.6 8.9 8.9Depreciation 3,187.9 3,552.3 3,714.3 3,962.9Interest 3,302.7 3,822.1 4,124.9 4,407.5Other Income 168.2 136.3 200.0 300.0PBT -249.4 5,490.0 6,217.6 7,026.4Exceptional Item -2,125.4 0.0 0.0 0.0Total Tax -1,524.1 1,854.9 2,051.8 2,318.7Reported PAT Before MI -850.8 3,635.1 4,165.8 4,707.7Profit/(loss) - JV/MI/Associate 108.8 19.1 3.5 3.5Reported PAT After MI -741.9 3,654.2 4,169.3 4,711.2Growth (%) PL NA 14.1 13.0Adj PAT after MI 1,383.5 3,654.2 4,169.3 4,711.2Adj 'EPS (|) 5.7 15.1 17.2 19.5


Cash flow statement (| crore)(Year-end March) FY16 FY17E FY18E FY19EProfit after Tax -741.9 3,654.2 4,169.3 4,711.2Add: Depreciation 3,187.9 3,552.3 3,714.3 3,962.9(Inc)/dec in Current Asset 2,791.2 -13,649.2 -7,683.0 -3,986.9Inc/(dec) in CL&Provisions -4,805.7 6,253.8 998.9 1,094.8Others -1,744.1 2,571.5 0.0 0.0CF from operating activities -1,312.7 2,382.6 1,199.4 5,782.0(Inc)/dec in Investments -19.2 -100.0 -100.0 -100.0(Inc)/dec in Fixed Assets -4,133.9 -4,300.0 -2,700.0 -3,000.0Others 735.2 50.0 50.0 50.0CF from investing activities -3,417.8 -4,350.0 -2,750.0 -3,050.0Issue/(Buy back) of Equity 0.0 -0.4 0.0 0.0Inc/(dec) in loan funds 4,310.4 5,950.0 2,500.0 -2,500.0Dividend paid & dividend tax -240.0 -367.3 -367.3 -452.1Inc/(dec) in Sec. premium -428.2 -1,801.5 0.0 0.0Others -90.9 0.0 0.0 0.0CF from financing activities 3,551.3 3,780.8 2,132.7 -2,952.1Net Cash flow -1,179.3 1,813.4 582.1 -220.2Opening Cash 1,913.2 734.0 2,547.4 3,129.5Closing Cash 734.0 2,547.4 3,129.5 2,909.4


Balance sheet (| crore)(Year-end March) FY16 FY17E FY18E FY19ELiabilitiesShare Capital 1,067.2 1,066.8 1,066.8 1,066.8Reserve and Surplus 20,576.7 22,062.2 25,864.2 30,123.2Total Shareholders funds 21,643.9 23,128.9 26,930.9 31,190.0Total Debt 39,195.0 45,145.0 47,645.0 45,145.0Deferred Tax Liability 1,420.2 3,991.7 3,991.7 3,991.7Minority Interest / Others 794.4 844.4 894.4 944.4Total Liabilities 63,053.5 73,110.0 79,462.0 81,271.1

AssetsGross Block 82,944.3 89,244.3 91,844.3 94,644.3Less: Acc Depreciation 27,846.9 31,399.2 35,113.5 39,076.3Net Block 55,097.4 57,845.1 56,730.8 55,568.0Capital WIP 4,704.7 2,704.7 2,804.7 3,004.7Total Fixed Assets 59,802.1 60,549.8 59,535.6 58,572.7Investments 618.4 718.4 818.4 918.4Inventory 8,403.4 12,885.8 17,892.4 19,603.3Debtors 2,801.6 5,043.4 7,384.7 8,092.1Loans and Advances 7,904.7 14,554.7 14,479.7 15,838.5Other Current Assets 799.0 1,074.0 1,484.0 1,694.0Cash 734.0 2,547.4 3,129.5 2,909.4Total Current Assets 20,642.7 36,105.3 44,370.4 48,137.2Current Liabilities 18,963.2 25,217.0 26,215.9 27,310.7Provisions 278.0 278.0 278.0 278.0Total Current Liabilities 19,241.1 25,494.9 26,493.8 27,588.6Net Current Assets 1,401.5 10,610.3 17,876.6 20,548.6Others Assets 1,231.4 1,231.4 1,231.4 1,231.4Application of Funds 63,053.5 73,110.0 79,462.0 81,271.1 Source: Company, ICICIdirect.com Research

Key ratios (Year-end March) FY16 FY17E FY18E FY19EPer share data (|)Adj EPS 5.7 15.1 17.2 19.5Cash EPS 10.1 29.8 32.6 35.9BV 89.5 95.7 111.4 129.0DPS 0.8 1.2 1.2 1.5Cash Per Share 3.0 10.5 12.9 12.0Operating Ratios (%)EBITDA Margin 14.5 22.1 20.6 20.4PBT / Total Operating income -0.6 9.5 9.2 9.5Adj PAT Margin 3.3 6.4 6.2 6.4Inventory days 135 160 175 175Debtor days 24 32 40 40Creditor days 165 160 142 135Return Ratios (%)Adj RoE 6.4 15.8 15.5 15.1Adj RoCE 4.8 13.5 14.0 15.1RoIC 4.8 14.0 14.2 15.2Valuation Ratios (x)P/E 33.7 12.8 11.2 9.9EV / EBITDA 14.0 7.0 6.6 5.9EV / Net Sales 2.0 1.6 1.4 1.2Market Cap / Sales 1.1 0.8 0.7 0.6Price to Book Value 2.2 2.0 1.7 1.5Solvency RatiosDebt/EBITDA 6.5 3.5 3.4 3.0Debt / Equity 1.8 2.0 1.8 1.4Current Ratio 1.1 1.4 1.7 1.8Quick Ratio 0.6 0.9 1.0 1.0



ICICIdirect.com coverage universe (Metals & Mining) CMP M Cap

(|) TP (|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Coal India 325 340 Buy 204966 22.6 21.2 24.3 13.1 13.9 12.1 7.8 8.2 7.1 45.0 45.9 55.0 42.1 41.7 49.9

Hindalco Industries 182 165 Hold 37593 1.3 12.3 16.0 137.2 14.2 11.0 9.8 7.3 6.4 4.3 6.6 7.5 0.7 6.2 7.5

Hindustan Zinc 314 300 Hold 132538 19.3 20.7 26.0 14.2 13.3 10.6 12.2 9.4 6.6 21.6 23.1 25.4 21.8 20.1 21.7

JSW Steel 193 200 Hold 46712 5.7 15.1 17.2 33.7 12.8 11.2 14.0 7.0 6.6 4.8 13.5 14.0 6.4 15.8 15.5

SAIL 62 60 Hold 25567 -10.0 -5.9 -0.6 NA NA NA NA 62.6 13.6 -7.9 -2.0 2.1 -10.0 -6.5 -0.7

Vedanta 248 205 Hold 73532 7.3 12.4 16.1 30.3 17.8 13.7 8.6 7.0 5.9 6.5 9.2 11.0 4.8 7.9 9.6

Tata Steel 468 500 Hold 138821 -23.1 10.0 51.3 NA 47.7 9.3 16.8 8.8 7.0 2.1 6.8 9.2 -7.3 3.1 14.3

ROCE(%)Company

EV/EBITDA (x)EPS (|) P/E (x) ROE(%)



RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


Disclaimer ANALYST CERTIFICATION We /I, Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. It is confirmed that Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Dewang Sanghavi MBA (FIN) and Akshay Kadam MBA (FIN), Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

healthy realisations boost...

Documents