>JSW Steel (KARVY)

Higher sales volume, but lower price realization likely in Q4FY2009

JSW Steel, India's third- biggest producer, is on target to achieve robust sales volume growth during Q4FY2009. It is likely to sell 1.2 mn tonnes of steel as against 0.7 mn tonnes during Q3FY2009. However, it is to be noted that the YoY sales volume is likely to be flat. We believe that the sales volume growth could help the company in posting EBIDTA growth on QoQ in absolute terms, but the EBIDTA margin of 15% is expected to be under pressure due to the lower price realization.

Average steel price realization for the company was Rs 39,000 in Q3FY2009. The price realization for Q4FY2009 is expected to be lower by nearly 5% QoQ as the international prices have declined to US$450 per tonne. Though the global steel prices have fallen by 10% QoQ, then domestic prices have got some cushion due to the 5% depreciation in rupee against dollar to Rs 52.

On the raw material front, JSW Steel renegotiated coking coal rate downward by 43% to US$175 per tonne with Rio Tinto. Though the move should ensure lower raw material costs, the depreciation of rupee would work to the company's disadvantage to some extent.

In our opinion, the current rally in JSW Steel and other steel stocks is driven by the strong sales volume growth during Q4FY2009. We maintain our BUY rating on the stock with target price of Rs 334.

To see full report: JSW STEEL