Citigroup maintains `Sell' rating on JSW Steel

JSW STEEL
RESEARCH: CITIGROUP
RATING: SELL
CMP: Rs 174
Citigroup maintains `Sell' rating on JSW Steel. The company has enhanced its crude steel capacity from 4.8m tpa to 7.8m tpa in Feb 2009. It expects FY10 volumes of 6.0-6 .5m tonnes, implying a growth of more than 75% y-o-y. JSWSL has changed its strategy to: 1) work on substituting imports (~ 12% of domestic demand); 2) capitalise on rural demand; 3) maximise sales of value-added products; 4) focus on bulk orders in the oil and gas sector; and 5) decrease its export presence. JSWSL's standalone debt is Rs 9,700 crore and consolidated debt is ~Rs 14,700 crore. While JSWSL has not breached its standalone debt covenants (Debt/EBITDA at 3.25x and D/E at 1.75x), it is in discussions with banks to revise these covenants. It expects to meet its interest and debt repayment obligations based on its cash flowestimates. JSWSL's US plate/pipe mills are running at 20% utilisation. 4QFY09 will continue to be weak, but it hopes for better order inflow in FY10. Citigroup values JSWSL at a 12-month forward EV/EBITDA of 5.5x and maintains `Sell' recommendation based on an extended global slowdown, decline in international steel prices, declining margins and its high leverage.
Source: ET