India Equity Research

Metals and Mining

Company Update

JSW STEEL
Revision in estimates

Incorporating JSW Ispat and Chile iron ore mines in estimates

We are introducing JSW Ispat (erstwhile Ispat Industries) and Chile iron ore mines in our estimates. We expect JSW Ispat to report EBITDA/t of USD 71/t in FY12 and USD 90/t in FY13. Shipments have commenced from Chilean iron ore mines. We expect volumes of 0.8 mt in FY12 (management guidance 1 mt) and 1 mt in FY13 (management guidance 2 mt), potentially contributing ~USD 32 mn and USD 30 mn to FY12 and FY13 estimated EBITDA, respectively.

April 11, 2011

Reuters: JSTL.BO Bloomberg: JSTL IN

EDELWEISS 4D RATINGS Absolute Rating Rating Relative to Sector Risk Rating Relative to Sector BUY Outperformer Medium Overweight

Management guiding for FY12 EBITDA/t of USD 170-180

JSW Steel has guided for USD 170-180/t of EBITDA in FY12 as a result of increased captive coke, iron ore beneficiation and reduced coke rate/hard coking coal proportion. We retain our assumption of USD 177/t. Q4FY11 EBITDA/t is likely to be over USD 200/t.

Sector Relative to Market

Note: Please refer last page of the report for rating explanation

MARKET DATA CMP 52-week range (INR) Share in issue (mn) M cap (INR bn/USD mn) : : : : INR 957 1,400 / 751 223.1 214 /4,808 1,769.9

3.2 mtpa expansion delayed to mid May; guidance retained at 9 mt

The 3.2 mtpa expansion which was expected to be completed by the end of March 2011 is now likely to get over in May 2011. Certain facilities (casters, converters, ladle furnaces) have started trial runs. However, the blast furnace is delayed. Despite the delay, management is guiding for 9 mt of volumes in FY12. We retain our assumption for FY12 at 8.5 mt.

Avg. Daily Vol. BSE/NSE (000): SHARE HOLDING PATTERN (%) Promoters* MFs, FIs & Banks FIIs Others : : : : :

37.7 5.2 26.1 31.0 15.5

Prefer to value JSW Ispat on replacement cost basis

We use the replacement cost method to value JSW Ispat. We assign a 40% discount to the equity valuation based on replacement cost method to arrive at a fair value of INR 53/share of JSW Steel. Our valuation of JSW Ispat is 41% less than the investment made by JSW Steel (INR 21.6 bn) in JSW Ispat

* Promoters pledged shares (% of share in issue) PRICE PERFORMANCE (%) Stock 1 month 3 months 4.1 (13.5) (21.8)

Nifty EW Metals and Mining Index 6.7 (2.8) 10.1 4.9 (5.6) (11.8)

Outlook and valuations: Positive, maintain BUY

We like JSW Steel for its volume growth and low conversion cost. While, JSW Ispat will be a drag on valuations, this could be partially offset by the Chile iron ore mines (valuation: INR 28/share). We increase our FY12 and FY13 estimated EBITDA by 3% and 4%, respectively, but lower our EPS estimates by 6% and 2.5% for FY12 and FY13 respectively, after incorporating Chilean iron ore mines and JSW Ispat. We retain BUY/SO with a fair value of INR 1,190/share.

12 months

Financials (Consolidated) Year to March Revenues (INR mn) Rev. growth (%) EBITDA (INR mn) Adjusted net profit (INR mn) Basic shares outstanding (mn) Diluted EPS (INR) EPS growth (%) Diluted P/E (x) EV/EBITDA (x) ROAE (%) FY09 159,348 27.9 21,871 1,712 187 10.4 (87.6) 94.2 15.8 3.6 FY10 189,572 19.0 40,707 14,980 187 81.3 681.5 12.0 8.4 19.4 FY11E 236,345 24.7 46,563 15,092 241 64.0 (21.3) 15.3 8.9 12.1 FY12E 379,259 60.5 74,707 26,921 241 111.9 75.0 8.8 6.1 14.5
Edelweiss Securities Limited

Prasad Baji +91 22 4040 7415 prasad.baji@edelcap.com Faisal Memon +91 22 6623 3478 faisal.memon@edelcap.com

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Metals and Mining

3.2 mtpa expansion at Vijaynagar delayed to mid May; volume guidance retained at 9 mt
The 3.2 mtpa expansion, which was expected to be completed by the end of March 2011, is now likely to get over in May 2011. Certain facilities (casters, converters, ladle furnaces) have started trial runs. However, the blast furnace is delayed. Despite the delay, management is guiding for 9 mt of volumes in FY12. We retain our assumption for FY12 at 8.5 mt.

EBITDA/t guidance of USD 170-180/t in FY12

Management has reiterated their view of achieving USD 170-180/t of EBITDA in FY12, despite the pressure of increased coking coal prices. The cost push of coking coal is expected to be negated by the possible savings accruing from the increased contribution of captive coke (currently 85%, expected 100% in FY12), higher iron ore beneficiation capacity, reduced coke rate and lower proportion of hard coking coal (lower 500bps) in blast furnace. The proportion of iron ore fines is expected to increase from 65% to 85% in FY12, while coke rate is targeted to be reduced by 50kg/t. This would result in cost savings of USD 25-30/t. Our current EBITDA/t estimate for FY12 is USD 177/t and we retain the same.

Shipment from Chile iron ore mines have started

Reserves and production The Chile iron ore mines contain reserves of ~150 mt in 1% area (total area is ~26,245 Ha). Shipments have started with management guiding for 1 mt in FY12 and 2 mt in FY13. We are incorporating 0.8 mt and 1 mt in FY12 and FY13, respectively. Investment in the mines JSW Steel acquired a 70% interest in these mines for a consideration of ~USD 250 mn in 2008. The agreement also provides JSW the right to use the existing Caldera port. The company has made an investment of USD 25-30 mn till date and the likely investment in the next two years is expected to be USD 70-75 mn. The FOB cash cost is expected to be USD 65/t (63% Fe grade), with freight cost of USD 10-15/t and royalty cost of ~USD 4-5/t. The cash cost also includes the cost of beneficiation. Incorporating Chile mines in our estimates We believe that commissioning of these mines will provide financial hedge to the company as it currently has only ~20% integration from its captive iron ore mines in India. At current iron ore prices, the mines can potentially deliver ~INR 1.5 bn (JSW Steels share) to the EBITDA. We include the mines in our valuation, assigning it value of INR ~28/share.

Edelweiss Securities Limited

JSW Steel
JSW Ispat

Estimating JSW Ispats EBITDA at USD 71/t in FY12 and USD 90/t in FY13
Considering higher raw material costs and delay in synergy benefits, our estimated EBITDA of USD 90/t in FY13 is lower than the earlier anticipated EBITDA/t of USD 130/t. Post the shutdown in December 2010, the capacities of JSW Ispat have ramped up significantly and are currently operating at 80-90% utilisation levels. The management expects volumes of 3 mtpa (90% utilization) from these facilities. However, we are considering volumes of 2.8 mt for FY12 as well as FY13. On the cost savings initiatives, though sourcing of iron ore (lumps and fines) from Karnataka has already started, sourcing of power from JSW Energy, pellets from JSW Steel and coke from JSL are yet to materialise and we expect delays on this front. Management expects EBITDA of USD 80-90/t in FY12. We estimate JSW Ispat to report EBITDA/t of USD 71/t and USD 90/t in FY12 and FY13, respectively.

Backward integration plans proposed

JSW Ispat has undertaken a INR 31.4 bn capex to set up backward integration facilities to gain better control over cost. The facilities being implemented are a 110 MW power plant, a 3 mtpa pellet plant and a 1 mtpa coke oven plant. Besides, the company will also expand its capacity from 3.3 mtpa to 4.0 mtpa at an investment of INR 14 bn (included in INR 31.4 bn). However, progress on this is slow and we expect it to be delayed from the target commissioning date of FY13 end. Table 1: Planned capex at JSW Ispat for backward integration Facility

(INR mn) 4,900 6,000 5,000 1,320 14,180 31,400

110 MW power plant 3 mtpa pellet plant 1 mtpa coke plant Other cost saving capex Enhancement of capacity from 3.3 to 4 mtpa Total

Source: Company, Edelweiss research

Current facilities of JSW Ispat: A snapshot

JSW Ispats 3.3 mtpa HRC plant produces HRC through the gas-based DRI (1.6 mtpa) blast furnace (2 mtpa) EAF (4.2 mtpa) thin slab casting hot strip mill (HSM) (3.3 mtpa) route. The plant has adequate land to house the proposed projects of 110 MW captive power plant, 1 mtpa coke oven, and 3 mtpa pellet plant and expansion from 3.3 mtpa to 4 mtpa. Key advantages of the plant are: Proximity to flat steel consumers in a radius of 110 km, including the automobile hub of Pune and re-rollers. Low employee base of 3,500 keeps staff cost low. Gas-based process provides better quality DRI compared to coal-based process. Shore-based plant reduces internal freight and facilitates export of HRC (though proportion is low at 6%). Captive jetty of 12 mtpa capacity for both in-bound and out-bound logistics with up to 3 mtpa excess capacity available for commercial use.

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Metals and Mining

The adoption of DRI-BF-EAF route reduces power consumption in EAF by over 50% (however, coke has become an even bigger issue) while thin slab casting reduces conversion cost by obviating need for reheating and improving yield. EAF (con arc based) can accept all possible metallic inputs hot metal, DRI andscrap in any proportion (though productivity is not the same across various mixes). Table 2: Current capacities at JSW Ispat DRI

Hot metal 2,000,000 5,714

HRC 3,300,000 9,429

Sinter 2,800,000 8,000

Capacity (MT) Capacity (TPD)

1,600,000 4,748

Source: Company, Edelweiss research

Valuations
JSW Steel: Rolling forward to FY13; fair value of INR 1,190/share JSW Steel consolidated (ex-Ispat); valuation at 6x FY13E EV/EBITDA We roll forward to FY13 to value JSW Steels consolidated business (ex-JSW Ispat), to arrive at a fair valuation of INR 1,190/share. We assign 6x to steel business estimated EBITDA of INR 76.1 bn in FY13 and ascribe 5x to the Chilean iron ore business (contributes ~INR 28/share to JSW Steels fair valuation). We apply a 22% discount to the expected CWIP at end of FY12 of ~INR 40 bn for the West Bengal project and ~INR 10 bn for the CRM expansion in Vijaynagar, as they are due to be completed in FY14. JSW Ispat: Valuation based on replacement cost method We prefer to value JSW Ispat on a replacement cost method, as valuing it on earnings basis provides negative valuation. We consider a replacement value of USD 1,000/t for JSW Ispats acquisition of 3.3 mt, which corresponds to an equity valuation of INR 49.7 bn. The debt considered in our valuation includes acceptances of INR 18.8 bn. To this, we apply a 40% discount to account for the expected weak earnings and high debt. We arrive at a fair value of INR 29.8 bn, translating into contribution of INR 53/share of JSW Steel (considering the 43% stake). Our valuation of JSW Ispat is at a 41% discount to the investment made by JSW Steel in JSW Ispat (INR 21.6 bn), equivalent to INR 89.5/share.

Edelweiss Securities Limited

JSW Steel
Table 3: Fair valuation of INR 1,190 based on SOTP

EV/EBITDA valuation for JSW Steel (ex-JSW Ispat) Applicable multiple (x) Steel business EBITDA (INR mn) Applicable multiple (x) Chile iron ore mines EBITDA (INR mn) Enterprise value (INR mn) Less:Net debt- previous FY (INR mn)* Add: CWIP - previous FY (INR mn) Less:Preference capital (INR mn) Less:Minority interest (INR mn) Market cap (INR mn) No. of shares (mn) Fair value per share (INR) (Steel+ Chile iron ore) Replacement cost method valuation for JSW Ispat Capacity of JSW Ispat (mt) Replacement cost (USD/t) EV (USD mn) EV (INR mn) Debt (INR mn) Equity valuation (INR mn) Discount factor (%) Equity valuation at discount (INR mn) Stake of JSW in Ispat (%) Value of JSW stake in Ispat (INR mn) Per share of JSW (INR) JSW investment (INR mn) JSW investment per share (INR) Discount at above valn Value of JSW including JSW Ispat Current market share (INR) Upside (%)

FY13E 6.00 76,084 5.00 1,367 463,339 223,795 38,934 2,790 2,187 273,502 241 1,137 FY13E 3.3 1,000 3,300 148,500 98,800 49,700 40.0% 29,820 43.0% 12,831 53 21,570 89.5 -40.5% 1,190 979 21.5
Source: Company, Edelweiss research

* Debt includes acceptances of INR 50.5 bn

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Metals and Mining

JSW Steel: Revising estimates (Ex-JSW Ispat)
We are lowering our FY12E EBITDA and PAT by ~1.6% and 2.2%, respectively, since we have lowered the expected EBITDA from US operations from USD 71 mn to USD 16 mn. Our EBITDA/t estimate for JSW steel (standalone), however, stands unchanged at USD 177/t in FY12. The interest and depreciation charges for the Chilean iron ore operations are already a part of the existing capital charges and, hence, will have minimal incremental impact. Table 4: Revising JSW Steels (ex-JSW Ispat) EBITDA downwards by 1.6% for FY12 and 1.7% for FY13 FY12E FY13E

New JSW Steel Consolidated- Ex JSW Ispat Crude steel production (mt) Finished steel production (mt) Net blended realisation (INR/tonne) Net blended realisation (USD/tonne) EBITDA (INR/tonne) EBITDA (USD/tonne) Consolidated financials Revenue (INR mn) EBITDA (INR mn) Adjusted PAT (INR mn) EPS ( INR) 333,530 71,145 28,017 116.4 9.0 8.5 37,805 822 8,124 177

Old 9.0 8.5 36,402 791 8,143 177 328,173 72,331 28,645 119.1

% change 0.0 0.0 3.9 3.9 (0.2) (0.2) 1.6 (1.6) (2.2) (2.2)

New 9.7 9.2 37,666 819 8,155 177 362,915 77,451 32,142 133.6

Old 9.7 9.2 36,267 788 8,166 178 355,560 78,811 32,421 134.8

% change 0.0 0.0 3.9 3.9 (0.1) (0.1) 2.1 (1.7) (0.9) (0.9)

Source: Company, Edelweiss research

Introducing JSW Ispat: EBITDA/t to be lower than earlier anticipated

We initially anticipated JSW Ispat to report EBITDA/t of USD 130/t in FY13. However, after incorporating the higher coking coal price assumptions, detailed review of financials and delay in synergy benefits, we now estimate JSW Ispat to report an EBITDA/t of USD 71/t and USD 90/t in FY12 and FY13, respectively. We are considering volumes of 2.8 mt against management guidance of 3 mt for FY12 and FY13. Though the company has already started sourcing iron ore fines and lumps from Karnataka instead of sourcing high cost iron ore, other synergy benefits such as pellets from JSW Steel, coke from JSL and power from JSW Energy will take time to flow in. Moreover, the increased hard coking coal cost in FY12, from USD 251/t to USD 292/t, will also have its impact. As a result we expect a modest EBITDA/t of USD 71/t and USD 90/t in FY12 and FY13, respectively. Also, we believe interest cost will remain high in FY12 and FY13 as a result of delay in debt restructuring and higher interest rate scenario. We estimate interest cost of INR 8.1 bn (management guidance of INR 7.2 bn) in FY12 and INR 8.2 bn in FY13. We expect JSW Ispat to report a net loss of INR 1.3 bn in FY12 and to break-even at the PAT level in FY13.

Edelweiss Securities Limited

JSW Steel
Table 5: JSW-Ispat to break-even at net level in FY13

FY12E JSW Ispat Volumes (mt) Net blended realisation (INR/tonne) Net blended realisation (USD/tonne) Revenue (INR mn) EBITDA (INR mn) Net profit (INR mn) EBITDA (INR/tonne) EBITDA (USD/tonne) 2.8 37,794 822 106,298 8,279 (1,347) 3,275 71

FY13E 2.8 38,013 826 106,914 10,506 148 4,156 90

Y-o-Y (%) 0.0 0.6 0.6 0.6 26.9 NM 26.9 26.9

Source: Company, Edelweiss research

Financial Snapshot: JSW with Ispat Incorporating JSW Ispat and Chile operations in our estimates results in a 3.3% and 4% increase in our FY12 and FY13 EBITDA estimate, to INR 74.7 bn and INR 81.8 bn. As per management guidance, JSW Ispats financials have been proportionately incorporated considering JSW Steels ~43% stake. However, higher capital charges at JSW Ispat result in lowering of net profit by 6% for FY12 (INR 26.9 bn) and 2.5% to for FY13 (INR 31.6 bn). Table 6: Revising consolidated net profit downwards by 6% for FY12 and 2.5% for FY13 FY12E FY13E

With JSW Ispat and Chile JSW Steel Consolidated financials Revenue (INR mn) EBITDA (INR mn) Adjusted PAT (INR mn) EPS ( INR) 379,259 74,707 26,921 111.9

Previous

% change

With JSW Ispat and Chile

Previous

% change

328,173 72,331 28,645 119.1

15.6 3.3 (6.0) (6.0)

408,909 81,970 31,613 131.4

355,560 78,811 32,421 134.8

15.0 4.0 (2.5) (2.5)

Source: Company, Edelweiss research

Edelweiss Securities Limited

Metals and Mining

Company Description
JSW, part of the USD 8 bn O.P. Jindal Group, was incorporated as Jindal Vijaynagar Steel (JVSL). It began operations in 1999 with the commissioning of the first Corex-2000 module in India (third in the world after Posco in South Korea and Isicor in South Africa), with a capacity to produce 0.8 mn tonnes of hot metal. In FY05, the company merged group company JISCO (Jindal Iron and Steel Company), which had a strong presence in downstream products such as CR and GP/GC products. In FY06, the company merged Euro Ikon, Euro Coke, and JSW Power and was renamed JSW Steel, transforming into an integrated steel manufacturer. The current steel capacity of JSW Steel is 7.8 mtpa, which includes 6.8 mtpa capacity at Vijaynagar and 1 mtpa capacity at Salem that caters exclusively to the long product segment.

Investment Theme
Global steel demand is showing definite signs of revival. Flat steel prices have increased in the past 6 months, both globally and in India. JSW has expanded rapidly to emerge as Indias second largest steel producer in terms of capacity and is adding 3mtpa more next year. It continues to focus on the domestic market and increasing its penetration in semi-rural and rural areas by opening retail outlets.

Key Risks
Delays in completion of brownfield expansion Weakness in global steel demand leading to lower international prices

Edelweiss Securities Limited

JSW Steel

Financial Statements (Consolidated)

Income statement Year to March Net revenue Accretion to stock Raw material costs Employee expenses Power and freight SGA and other expenses Total operating expenses EBITDA Depreciation and amortisation EBIT Interest expenses Other income Profit before tax Provision for tax Core profit Profit after tax Minority interest Share of profit of associates Profit after minority interest FCCB interest post-tax Adjusted PAT Basic shares outstanding (mn) Basic EPS Diluted shares (mn) Diluted EPS Dividend per share (INR) Dividend payout (%) Tax rate (%) Common size metrics- as % of net revenues Year to March Operating expenses Depreciation Interest expenditure EBITDA margins Net profit margins Growth metrics (%) Year to March Revenues EBITDA PBT Net profit EPS FY09 27.9 (39.0) (87.0) (85.4) (87.6) FY10 19.0 86.1 597.7 539.9 681.5 FY11E 24.7 14.4 6.4 2.2 (21.3) FY12E 60.5 60.4 73.5 71.3 75.0 FY13E 7.8 9.7 17.8 17.5 17.4 FY09 86.3 6.2 7.3 13.7 1.5 FY10 78.5 6.9 5.8 21.5 8.2 FY11E 80.3 6.5 4.2 19.7 6.7 FY12E 80.3 5.5 4.5 19.7 7.2 FY13E 80.0 5.6 4.6 20.0 7.8 FY09 159,348 (3,609) 107,750 5,186 8,038 20,113 137,478 21,871 9,878 11,993 11,556 2,717 3,153 726 2,427 2,427 (205) 117 2,516 804 1,712 187 10.4 187 10.4 1 20.3 23.0 FY10 189,572 (171) 112,483 4,795 10,475 21,282 148,865 40,707 12,987 27,720 11,080 5,360 22,000 6,467 15,533 15,533 (332) 111 15,755 774 14,980 187 81.3 187 81.3 10 15.1 29.4 FY11E 236,345 0 142,459 5,346 13,040 28,936 189,782 46,563 15,258 31,305 9,946 2,055 23,415 7,535 15,879 15,879 (149) 147 15,881 789 15,092 241 64.0 241 64.0 10 19.5 32.2 FY12E 379,259 0 230,245 7,570 20,645 46,092 304,552 74,707 20,675 54,032 17,255 3,850 40,627 13,425 27,202 27,202 (194) 258 27,138 217 26,921 241 114.0 241 111.9 10 11.2 33.0 (INR mn) FY13E 408,909 0 248,058 8,141 4,344 66,396 326,939 81,970 22,974 58,997 18,989 7,854 47,862 15,909 31,953 31,953 (177) 296 31,835 221 31,613 241 133.9 241 131.4 10 9.7 33.2

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Metals and Mining

Balance sheet As on 31st March Equity capital- Voting shares Preference shares Reserves & surplus Shareholders funds Secured loans Unsecured loans Borrowings Minority interest Deferred tax liability Sources of funds Gross block Depreciation Net block CWIP Total fixed assets Investments Deferred tax asset Goodwill Loans and advances Inventories Sundry debtors Cash and equivalents Other current assets Total current assets Sundry creditors and others Provisions Total CL & provisions Net current assets Miscellaneous expenditure Uses of funds Book value per share (BV) (INR) Free cash flow metrics Year to March Net profit Depreciation Others Gross cash flow Less: Changes in W. C. Operating cash flow Less: Capex Free cash flow Cash flow statement Year to March Operating cash flow Financing cash flow Investing cash flow Net cash flow Capex Dividends paid Share issuance/(buyback) FY09 45,924 12,363 (58,409) (122) (59,735) (3,404) 0 FY10 33,613 (5,762) (29,323) (1,471) (27,537) (570) 0 FY11E 42,796 69,970 (95,397) 17,370 (73,427) (3,153) 75,182 FY12E 45,079 11,491 (75,860) (19,290) (90,860) (3,153) 0 FY13E 63,947 11,440 (65,058) 10,329 (80,058) (3,153) 0 FY09 2,516 9,878 5,369 17,762 28,161 45,924 (59,735) (13,812) FY10 15,755 12,987 10,165 38,906 (5,293) 33,613 (27,537) 6,076 FY11E 15,881 15,258 (11,277) 19,862 22,934 42,796 (73,427) (30,631) FY12E 27,138 20,675 27,743 75,556 (30,477) 45,079 (90,860) (45,781) FY09 2,481 2,889 72,669 78,039 134,708 30,794 165,502 2,732 14,213 260,487 223,889 40,798 183,092 95,852 278,943 3,966 1,445 7,831 12,428 29,246 3,991 5,093 172 50,929 81,799 829 82,628 (31,699) 0 260,487 402 FY10 2,481 2,790 87,300 92,571 134,541 27,190 161,730 2,187 19,650 276,138 267,921 53,393 214,528 69,562 284,090 6,282 2,802 8,992 16,038 28,667 6,964 3,030 0 54,700 78,078 2,649 80,727 (26,027) 0 276,138 480 FY11E 3,016 7,109 174,969 185,095 171,978 28,650 200,628 2,037 19,650 407,410 392,651 95,040 297,611 76,992 374,603 7,416 6,950 11,709 22,854 47,128 11,405 24,768 9,181 115,336 105,310 3,305 108,614 6,722 9 407,410 740 FY12E 3,016 7,109 199,471 209,596 202,172 29,063 231,236 1,843 19,650 462,324 467,651 115,716 351,936 83,859 435,795 7,674 6,950 11,709 30,842 66,199 15,993 8,689 9,181 130,905 126,119 4,599 130,718 187 9 462,324 842 (INR mn) FY13E 3,016 7,109 228,744 238,870 233,923 29,510 263,434 1,665 19,650 523,618 480,942 138,689 342,253 138,208 480,460 7,971 6,950 11,709 33,257 73,910 17,214 21,509 9,181 155,071 133,562 4,990 138,552 16,519 9 523,618 963 (INR mn) FY13E 31,835 22,974 6,216 61,025 2,922 63,947 (80,058) (16,111)

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JSW Steel
Ratios Year to March ROAE (%) ROACE (%) Inventory (days) Debtors (days) Payable (days) Cash conversion cycle (days) Debt/EBITDA Current ratio Debt/ Equity Adjusted debt/Equity Turnover Year to March Fixed assets turnover (x) Total asset turnover (x) Equity turnover (x) Du pont analysis Year to March NP margin (%) Total assets turnover Leverage multiplier ROAE (%) Valuation parameters Year to March Diluted EPS (INR) Y-o-Y growth (%) CEPS (INR) Diluted P/E (x) Price/BV(x) Market cap/Sales (x) EV/Sales (x) EV/EBITDA (x) Dividend yield (%) FY09 10.4 (87.6) 67.5 94.2 2.4 1.1 2.2 15.8 0.1 FY10 81.3 681.5 154.8 12.0 2.0 1.0 1.8 8.4 1.0 FY11E 64.0 (21.3) 130.7 15.3 1.3 1.0 1.7 8.9 1.0 FY12E 111.9 75.0 200.9 8.8 1.2 0.6 1.2 6.1 1.0 FY13E 131.4 17.4 230.3 7.5 1.0 0.6 1.2 5.8 1.0 FY09 1.7 0.7 3.1 3.6 FY10 8.4 0.7 3.3 19.4 FY11E 6.8 0.7 2.6 12.1 FY12E 7.3 0.9 2.3 14.5 FY13E 7.9 0.8 2.3 14.9 FY09 1.0 0.7 2.0 FY10 1.0 0.7 2.2 FY11E 0.9 0.7 1.7 FY12E 1.2 0.9 1.9 FY13E 1.2 0.8 1.8 FY09 3.6 5.1 89 11 218 (118) 7.6 0.6 2.1 2.1 FY10 19.4 10.5 94 11 260 (155) 4.0 0.7 1.7 1.7 FY11E 12.1 9.3 97 14 235 (124) 4.3 1.1 1.1 1.1 FY12E 14.5 12.6 90 13 183 (80) 3.1 1.0 1.1 1.1 FY13E 14.9 12.2 103 15 191 (73) 3.2 1.1 1.1 1.1

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Metals and Mining& INTERPRETATION RATING

Company Bhushan Steel Hindalco Industries Jindal Steel & Power National Aluminium Company Sesa Goa Sterlite Industries (India) Usha Martin

Absolute reco BUY BUY HOLD REDUCE REDUCE BUY BUY

Relative reco SO SO SP SU SU SP SO

Relative risk H M M M M M M

Company Coal India Hindustan Zinc JSW Steel Prakash Industries Steel Authority of India Tata Steel

Absolute reco HOLD BUY BUY BUY HOLD BUY

Relative reco SU SO SO SO SU SO

Relative Risk M L M M L M

ABSOLUTE RATING
Ratings Buy Hold Reduce Expected absolute returns over 12 months More than 15% Between 15% and - 5% Less than -5%

RELATIVE RETURNS RATING

Ratings Sector Outperformer (SO) Sector Performer (SP) Criteria Stock return > 1.25 x Sector return Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Low (L) Medium (M) High (H) Criteria Bottom 1/3rd percentile in the sector Middle 1/3rd percentile in the sector Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING
Ratings Overweight (OW) Equalweight (EW) Criteria Sector return > 1.25 x Nifty return Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return

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JSW Steel

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Vikas Khemani Nischal Maheshwari Head Head Institutional Equities Research vikas.khemani@edelcap.com nischal.maheshwari@edelcap.com +91 22 2286 4206 +91 22 6623 3411

Coverage group(s) of stocks by primary analyst(s): Metals and Mining

Bhushan Steel, Coal India, Hindalco Industries, Hindustan Zinc, Jindal Steel & Power, JSW Steel, National Aluminium Company, Prakash Industries, Steel Authority of India, Sesa Goa, Sterlite Industries (India), Tata Steel, Usha Martin

JSW Steel

EW Indices
1,400

1,400 (INR) 1,200 1,000 800 600 Buy

Buy Buy Buy

1,150 900 650 400

Buy

Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11

7-Jan-10

7-Jul-10 J S W Steel Ltd. EW Metals and Mining Index Nifty

7-Jan-11

Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Rating Distribution* * 3 stocks under review > 50bn Market Cap (INR) 111 118 Hold 51 Reduce 17 Total 189 < 10bn 17

Recent Research Date 05-Apr-11 Company Sesa Goa Title Price (INR) Recos 315 Reduce

Export ban removal: Positive, but factored in; EdelFlash

Between 10bn and 50 bn 61

01-Apr-11

Hindalco Mahan financial closure; Industries EdelFlash Raises perpetual bonds: avoids equity dilution; EdelFlash

209

Buy

17-Mar-11 Tata Steel

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