JSW Steel: Upward Capex Revision Does Not Matter
JSW Steel Ltd (JSTL IN) (JSW) reported strong revenue during 4Q’FY18 (ended in March) with an improving EBITDA margin on rising steel prices, resilient domestic demand, and lower iron ore prices. The improving EBITDA led us to revise our debt to EBITDA multiple expectation to a maximum of 3.8x in the next 3 years (down from 4.0x in our our previous report JSW Steel: A Race of EBITDA Against Debtdated 22 February 2018). The investment in Monnet Ispat & Energy Ltd (MISP IN) (MEL) at 30% of its outstanding shares was also lower than our 70% estimate which is our conservative case.
Our credit view of JSW remains stable, reflecting the company’s rising and recurring EBITDA on rising steel demand in India and JSW’s leading market position. These positives are mitigated by the huge INR444bn capex plan, of which INR250bn will be financed by debt, leading to a higher debt-to-EBITDA multiple. As such, we reiterate our NEUTRAL recommendation on the JSTLIN complex.