JSW Ispat Special products (Monnet Ispat) - turnaround scenario

Please find below my thought process:

Steel sector dynamics -

  1. Steel | 2016-2021 Data | 2022-2023 Forecast | Price | Quote | Chart | Historical
  • We can use the above to track steel prices
  1. My observation is any price above 4000 yuan per ton, which is roughly 41k INR per ton, Indian steel mills are profitable
  • Below this, the mills struggle
  1. 4k yuan per ton was Q4 average prices
  • Right now we can see spot is at least 500 yuan more
  1. So 10% more realization and mostly higher EDITDA at least 5% more margins (rough estimate given higher jaws)
  2. So basically we can expect good results June quarter for all steel companies
  • In fact better than March quarter

Monnet thesis -
As is known Monnet was taken over by JSW and Aoin via NCLT process

  1. Steel products are many types- broadly intermediaries and finished steel. Steel mills buy iron ore and coal and first convert to steel pellets first. Then they process pellets to finished products.
  2. In case of monnet they have a 2.4 million ton plant
  • And all they were doing so fat is producing pellets
  • That’s low margin business
  1. Pellets sell for 25000 Rs per ton approx. So margin is 1000 Rs per ton approx.
  • So 2.4 mtpa implies 240 Cr EBITDA per annum, if they do just pellets
  1. I see they are 100% utilized producing pellets
  2. Now from 2020 Jan quarter they started converting pellets to end products - billets and TMT bars
  • Realization is 45000 Rs per ton
  • Margin is 10000 Rs per ton
  1. For Jan quarter they did 135kt of these end product’s
  • Implies 135 Cr EBITDA + pellet EBITDA of some 50 Cr
  • That’s why we are seeing 200 Cr EBITDA
  1. Now last year they did very less of these end products
  2. Next Year guidance has been released
  • They said they can do 630kt end products
  • That’s 650 Cr EBITDA p.a.
  • Plus some 200 Cr from selling rest as pellet
  1. If we see capacity is 2.4mtpa
  • 630kt is roughly 1/3rd only, Rest is pellets.
  1. So for FY22 , if prices sustain, we can see 800 Cr EBITDA
  • Less interest and amortization of 500 Cr
  • That’s 300 Cr pre tax profit
  • And post tax some 250 Cr. . That implies forward PE of 8x roughly
  • Which is fair. .
  1. What’s interesting is when they ramp up end product sales - 2.4mtpa at 10000 Rs, Implies 2400 Cr EBITDA
  • Assume margin dips to 5000 Rs. . (That’s super bear case)
  • EBITDA = 1200-2400 cr
  • That implies forward PE of 1x :slight_smile:
  1. But for long term… and assume prices hold and assume they don’t take more debt or expand etc

Risks to the above -

  1. They are steadily ramping up - operational issues in ramping up will be very costly for minority investors
  2. Price wise… this is a manipulated stock… Lower circuits and upper circuits imply rampant trading and speculation
  3. Steel.prices should sustain these high levels.
  4. On supply side
    -. The issue is companies will.come up with expansion plans
    -. Jsw steel said they are going to become 38mt pa very soon
  • That’s massive…


  1. For any new mill to be put up it takes 2-3 years
  • Even jsw steel takes time
  1. So price looks safe for 1-2 years
  • Unless China takes a U turn and starts manufacturing steel at cheap prices like before
  • N they set up plants very quickly too
  • Will impact prices

Please offer your critical view of the above.

Disclosure: invested 33% of my overall portfolio. Average buy price is 38 Rs hence I am already sitting on a good profit. Please don’t buy just based on above. Please do your own analysis.

All the above figures are approximate numbers to derive a back of the envelope calculation only


Thanks Siva, will check with my friends in steel and confirm in a day or two. in the mean time. what i could make out is

china has stopped export subsidy of 13% and shut some of the most polluting units leading to 50 MT reduction in exports from 2015 levels. commensurate capacity yet to come up. which means pricing stability till supply exceeds demand. Corp Presentation_-pages-25.pdf (1.2 MB)

am attaching the aionjsw corp ppt which very well indicates the industry and monnets turnaround as well as future path.

aionjsw.pdf (2.1 MB)

indian iron ore and HRC prices at significant discount to international prices.



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Thanks for your replies Ashish, Monnet appears to be well poised to gain from a turnaround perspective. It will be good to understand the end users of Monnet and whether they are exporting now? Also top head has changed recently. It will be good to know about him too

I’ve very recently started researching the business. Which all competitors would be closest in terms of product portfolio from the listed space (or even unlisted)?

Hi Arpit, steel is a commodity business. All JSW Ispat produces is steel billets and tmt bars. Tata steel long is a comparable for tmt bars. For billets many players are there including JSPL. Idea about this company is turnaround and ramp up. Geographically they are placed in Raipur and Raigarh. Nor sure whether they are exporting and who the end consumers are… would be good to know for sure

it is more dependent on JSW management
Currently steel cycle is up

But investing 33% of portfolio on a fallen angel is guge risk.

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really good work Shiva.
What about raw material integration?
As far as I understand it has coal mines but for iron ore the company depends on the the parent.

Hi Vikas, thanks a lot. If a company has captive mines margins are going to be higher. In case of Jindal Steel and Power, operating margin is as high as 45%. In case of JSW Ispat, I can see raw materials are linked so supply is assured. They do buy iron ore from JDW steel, margin would still be 20%+

OFS opens tomorrow…Aion selling its 21.18% stake…Floor price is Rs 27/-

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Oh ! The reserve price at Rs 27 is a good 50% to CMP. . Hoes does this work?

The Floor price declared is just the price fixed at the discretion of the seller(holding at least 10% of share capital) below which no bids can be placed and probably have fixed a low price(compared to the CMP) to garner higher interest from market participants.

The discovered price will likely be much higher.

The issue will be open for Retail(10% reservation) on the 16’th.

You may refer to this article for more info: What Is OFS (Offer For Sale)?

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If anyone is interested in tracking the OFS (today non-retail window and tomorrow retail) below are the links. It is interesting to watch the build up - bid details and the indicative price as the day progresses.

NSE - National Stock Exchange of India Ltd. (nseindia.com)




Well can someone give more guidance on what bid price to be placed for this OFS - higher side or the lower band? :roll_eyes: In case one would want to ride the commodity cycle?

This OFS is based on Price Priority - there will be multiple clearing prices and the higher price you bid more likely you will get allotment. So you can apply at any price based on your risk appetite but allocation will be based on the demand. You can check the live bid status on NSE and BSE to see where bids are concentrated, and then make informed bids. You can refer below article for details:


Thank you so much. Based on the current bids the concentration today is happening at around base price however indicative price is showing around 28, this is non retail ofcourse.

Is my assumption and reading correct based on what I see on NSE website?

However this OFS is over subscribed already, does that means one needs to bid for the upper price band? Or around (read above) the concentrated bids?

You are right, you have to bid above the indicative price to get the allotment and the indicative price tend to swing largely towards the end of the session - that is when the institutions and HNIs bid (there is always a lag between the live price and the actual price so you have to take that into consideration while bidding). Don’t be surprised if the final price comes very close to today’s market price (around 54).

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The ofs is now closed. The discovered price is 33.91. wonder why this did not get closer to the traded price of 54.

It will be opened for retail tomorrow in my opinion.

So the Clearing Price for non-retail is 35.05 which is 40% discount from the Current Market Price. I had placed my bid @ 40.05 and got executed. I could have done better but no regrets - it was a good learning experience for me. Hoping to exploit the arbitrage opportunity in the next few days as CMP is still way above my buy price. If not I will be a long term investor here :rofl:

Disclosure: Not a SEBI registered advisor. Views are personal and not a buy/sell recommendation. Please do your own due diligence before investing.