>JSW STEEL: INLINE PERFORMANCE(EDELWEISS)

■ Consolidated Q2FY10 results largely in line with estimates
JSW Steel (JSW) reported Q2FY10 consolidated net revenues of INR 47.5 bn, up 2% Y-o-Y (up 19% Q-o-Q) due to 74% Y-o-Y increase in sales volumes in the standalone business. EBITDA, at INR 10.8 bn, was broadly in line with our estimate of INR 10.5 bn. PAT, at INR 3.2 bn, was slightly higher than our estimate, as tax rate was lower at 30% against our assumed 35%. EBITDA/tonne increased 39% Q-o-Q from USD 118 in Q1FY10 to USD 160 in Q2FY10 (standalone).

■ On target to meet volume guidance
In H1FY10, JSW has met 45% of its FY10 volume target (crude steel volume: 6.4 mt). Since H2 is seasonally stronger than H1, JSW expects to meet its crude steel volume guidance for FY10. Further, the company reiterated its crude steel volume guidance for FY11 of 7.0 mt.

■ Commencement of captive iron ore, coking coal mines likely in FY11
The 3.5 mt HSM project and 3.2 mtpa steel expansions, at Vijaynagar, are on schedule for completion by March 2010 and March 2011, respectively, as per the company’s guidance. JSW also indicated commencement of its iron ore and coking coal mines in India in FY11. However, we haven’t considered the same in our estimates and valuation.

■ Outlook and valuations: Strong volume growth; upgrade to ‘HOLD’
With continued volume growth, we have raised our FY10 and FY11 volume estimates by 16% and 8%, respectively. Also, we have cut down our FY10 earnings estimates for the US business based on actual inventory write-down and upgraded FY11 estimates, as utilisation is likely to improve. Overall, we have raised our FY10 and FY11 EPS estimates by 30% and 16% to INR 72.6 and INR 92.3, respectively. We estimate our fair value for JSW at INR 885 per share, based on increased FY11 earnings and FY11E EV/EBITDA of 5.5x. We, thus, upgrade the stock from ‘REDUCE’ to ‘HOLD’, and rate it ‘Sector Underperformer’ on relative return basis.

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