JSW Steel (JSTL) reported Q4FY15 earnings below our expectation due to higher than expected costs. Margins would improve Q2FY16 onwards on the back of reduced domestic iron ore prices, increased share of value-added products and rationalisation of logistics costs. JSTL reported 1 per cent q-o-q growth in volumes at 3,060 kilo tonnes (PL est: 3,070 kt). Realisations fell 5.6 per cent q-o-q/ ₹2,080 at ₹35,246, ahead of our expectation of Rs.35,027. Due to higher than expected share of imported ore and lower than expected fall in domestic iron ore prices, total costs/t fell marginally by 1.8 per cent q-o-q/Rs.562 at Rs.30,421 (PL est: Rs.29,603). This resulted in fall of 22 per cent q-o-q in operating profits/t at ₹5,469, below our expectation of Rs.6,024. Thanks to tax write back, PAT came tad below our expectation at Rs.88.3 crore (PL est: Rs.110 crore), down 77 per cent q-o-q/84 per cent y-o-y.
Key highlights of earnings: 1) Company’s targeted 22 per cent growth in domestic sales volumes would be driven by increased capacity of long products, start of electrical steel making capacity and replacement of high grade auto steel imports with the commissioning of CAL — 2; 2) Realisations are marginally lower in Q2, would be more than offset by lower input costs.
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