Materials / India

19 May 2011

Target price: Rs1,361.00 → Rs1,290.00

JSW Steel Up/downside: +39.7%
JSTL IN Share price (17 May): Rs923.50

Strong 4Q FY11; revised capex

should drive long-term earnings
• The 4Q FY11 results beat our and the market's expectations
• We have revised up our FY12 EBITDA forecast, but lowered our
target price slightly to factor in the planned capex increase
• We see the new capex as a long-term positive, especially for the
new CRM mill that would focus on automotive steel

How do we justify our view?

forecasts for both FY12 and FY13. Forecast revisions (%)

While we have revised up our revenue Year to 31 Mar 11E 12E 13E
Revenue change 9.2 1.3 6.3
and net-profit forecasts for both FY12 Net-profit change 22.0 3.7 1.4
and FY13, we have lowered our target EPS change 2.3 3.7 1.4
price to factor in the higher cash Source: Daiwa forecasts
Vishal Chandak payout for the additional capex
(91) 22 6622 1006
vishal.chandak@in.daiwacm.com announced and cost of funding for the Share price performance
additional capex.
Deepak Poddar
(91) 22 6622 1016
deepak.poddar@in.daiwacm.com
What we recommend
We maintain our Buy (1) rating for
JSW Steel, although we have lowered
What's new our six-month target price slightly
12-month share-price performance
JSW Steel’s strong 4Q FY11 (by 5.2% to Rs1,290) to reflect the Relative to BSE SENSEX 30 Index
EBITDA/t of US$208 was 22% announced capex increase, and
higher than our forecast. The despite the 3.7% upward revision to 12-month range 782.35-1,392.00
company announced an additional our FY12 PAT forecast. We believe Market cap (US$bn) 4.56
2m tpa brownfield expansion at its the key share-price catalyst remains Average daily turnover (US$m) 35.31
existing 6.8m tpa site, which would the commissioning of the 3.2m tpa Shares outstanding (m) 223
increase its total steel capacity at expansion at Vijaynagar, and that the Major shareholder Promoter and Promoter Group
faster than-expected turnaround at (45.0%)
Vijaynagar to 12m tpa, and to 13m
tpa at the company level. However, Ispat Industries (Ispat) (Not rated)
would also provide positive support Financial summary (Rs)
it has delayed the planned 3.2m tpa Year to 31 Mar 11E 12E 13E
expansion by one quarter. for the stock.
Revenue (m) 241,161 317,603 346,798
Operating profit (m) 33,189 51,626 59,910
What's the impact How we differ
Net profit (m) 16,594 29,732 35,235
We have adjusted upward our steel Our FY12 EPS forecast is 21.9% Core EPS 74.395 117 139
ASP assumptions by 4.9% for FY12 higher than that of the Bloomberg EPS change (%) (8.7) 57.1 18.5
and 6.3% for FY13 to factor in the consensus, due to our higher steel- Daiwa vs Cons. EPS (%) - 21.9 7
stronger-than-expected steel-pricing sales-volume forecast compared with PER (x) 12.4 7.9 6.7
environment. However, the delay in the consensus. We believe the Dividend yield (%) 1.2 0.5 0.5

the commissioning of its 3.2m tpa market’s sales-volume forecast is DPS 10.744 5.000 5.000

brownfield expansion at Vijaynagar by lower than ours, leading to a lower PBR (x) 1.3 1.1 0.9

a quarter has led us to revise down net-profit forecast. However, a lot is ROE (%) 13.1 15.4 14.7

our sales-volume forecast by 3.4% for likely to depend on how the company Source: Bloomberg, Daiwa forecasts

FY12. The new projects announced ramps up its new blast furnace, which
have led us to revise up our capex could determine the stock’s near-term
direction.

Important disclosures, including any required research certifications, are provided on the last two pages of this report.
 Materials / India
JSTL IN
19 May 2011

How do we justify our view?

Growth outlook
Valuation
Earnings revisions

Growth outlook JSW Steel: EBITDA and PAT

We forecast JSW Steel’s EBITDA to increase by 39.9% (Rs m) (mt

YoY for FY12 and by 12.1% YoY for FY13. We expect its 80,000 12
FY12 EBITDA growth to be driven largely by strong steel
10
sales-volume growth of 33.7% YoY. We forecast its steel 60,000
8
sales volume to increase by 13.7% YoY for FY13.
However, we expect the company’s blended steel ASP to 40,000 6
remain flat on a year-on-year basis for FY12, and decline 4
20,000
by 3.3% YoY for FY13. 2
0 0
FY10 FY11 FY12E FY13E
EBITDA (LHS) PAT (LHS) Sales volume ( RHS)

Source: Company, Daiwa forecasts

Valuation JSW Steel: one-year-forward EV/EBITDA multiples (x)

The stock is trading currently at a 5.3x EV/EBITDA (Rs)

multiple on our revised FY12 forecasts, which we 2,000
consider attractive due to what we see as strong 1,500
visibility for the company’s earnings growth and steel-
1,000
sales volumes. We continue to value the company at a
7.0x EV/EBITDA multiple on our revised FY12 500
forecasts. However, the additional capex required for 0
the new projects announced by the company has led us
(500)
to revise up our net-debt forecasts for FY12/13, thus Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10
resulting in us lowering our six-month target price Price EV/EBITDA 3x
slightly (by 5.2%) to Rs1,290 from Rs1,361. EV/EBITDA 6x EV/EBITDA 9x

Source: Company, Daiwa forecasts

Earnings revisions JSW Steel: revisions to our EBITDA forecasts

We have revised up our EBITDA forecasts for FY12 and (Rs m)

FY13 by 1.4% and 3.7%, respectively, after factoring in 80,000
our higher blended-steel ASP assumptions. The upward 76,000
revision to our FY12 EBITDA forecast also factors in the
72,000
3.4% downward adjustment to our steel sales-volume
assumption on account of the delay to the 3.2m tpa 68,000

expansion plan. However, despite our lower steel-sales 64,000

volume assumption, the upward adjustment to our ASP 60,000
assumption of 4.9% for FY12 has resulted in a slight FY12E FY13E
upward revision to our FY12 EBITDA forecast. EBITDA previous EBITDA revised

Source: Daiwa forecasts

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19 May 2011

Financial summary

Key assumptions
Year to 31 Mar 2006 2007 2008 2009 2010 2011E 2012E 2013E
Steel products total average revenue per
658.86 707.18 908.00 1,012.51 664.08 813.95 812.03 785.06
tonne (US$)
Finished steel production (tonnes) 2 3 4 3 6 6 9 10
Finished steel sales (tonnes) 2 3 3 3 6 6 9 10
Iron ore total costs per tonne (US$) 20.00 25.53 52.39 49.56 62.35 61.55 54.78 41.52
Coal metallurgical total cost per tonne
136.3 130.5 166.3 239.2 132.0 235.2 222.2 0.1
(US$)

Profit and loss (Rs m)

Year to 31 Mar 2006 2007 2008 2009 2010 2011E 2012E 2013E
Steel 61,801 85,544 124,567 159,348 189,572 241,161 317,603 346,798
others 0 0 0 0 0 0 0 0
Others 0 0 0 0 0 0 0 0
Total revenue 61,801 85,544 124,567 159,348 189,572 241,161 317,603 346,798
Other income 0 0 0 0 0 0 0 0
COGS (29,812) (40,276) (62,440) (96,193) (112,312) (147,053) (182,634) (197,414)
SG&A (4,009) (5,083) (6,154) (6,213) (6,290) (7,500) (19,056) (20,808)
Other op. expenses (14,577) (17,393) (28,612) (37,001) (43,250) (53,420) (64,286) (52,020)
Operating profit 13,403 22,792 27,361 19,941 27,720 33,189 51,626 59,910
Net-interest inc./(exp.) (3,603) (3,996) (5,730) (11,556) (11,080) (9,454) (10,389) (10,591)
Assoc/forex/extraord./others 3,212 356 2,612 (5,231) 5,360 682 1,720 1,500
Pre-tax profit 13,011 19,151 24,243 3,153 22,000 24,417 42,957 50,819
Tax (4,369) (6,233) (7,658) (726) (6,467) (7,823) (12,887) (15,246)
Min. int./pref. div./others (318) (318) (291) (290) (289) 0 (338) (338)
Net profit (reported) 8,325 12,601 16,294 2,137 15,244 16,594 29,732 35,235
Net profit (adjusted) 8,943 13,698 15,220 10,085 15,244 16,594 29,732 35,235
EPS (reported) (Rs) 56.090 79.385 87.112 11.427 81.496 74.395 117 139
EPS (adjusted) (Rs) 60.253 86.295 81.367 53.918 81.496 74.395 117 139
EPS (adjusted fully-diluted) (Rs) 60.253 78.844 81.367 53.918 76.676 65.251 117 139
DPS (Rs) 8.461 11.799 14.000 1.000 1.882 10.744 5.000 5.000
EBIT 13,403 22,792 27,361 19,941 27,720 33,189 51,626 59,910
EBITDA 17,461 27,774 34,780 29,818 40,707 48,786 68,272 76,556

Cash flow (Rs m)

Year to 31 Mar 2006 2007 2008 2009 2010 2011E 2012E 2013E
Profit before tax 13,011 19,151 24,243 3,153 22,000 24,417 42,957 50,819
Depreciation and amortisation 4,058 4,983 7,419 9,878 12,987 15,597 16,646 16,646
Tax paid (693) (2,852) (3,644) (2,624) (4,594) (7,823) (10,093) (12,451)
Change in working capital (251) 3,145 1,570 26,781 (4,710) 16,546 (4,808) 15,578
Other operational CF items (377) 3,791 3,069 8,736 7,930 0 0 0
Cash flow from operations 15,750 28,218 32,658 45,924 33,613 48,737 44,703 70,592
Capex (13,085) (23,564) (99,045) (59,735) (27,537) (90,000) (80,000) (110,000)
Net (acquisitions)/disposals 15 1,091 532 1,174 (1,914) 0 0 0
Other investing CF items 29 39 618 152 128 0 0 0
Cash flow from investing (13,041) (22,433) (97,895) (58,409) (29,323) (90,000) (80,000) (110,000)
Change in debt (937) 1,383 69,708 25,484 6,392 4,000 (9,386) 38,000
Net share issues/(repurchases) 2,408 2,122 1,991 0 (556) 54,000 36,556 0
Dividends paid (1,054) (4,087) (326) (3,404) (570) (3,197) (1,826) (1,826)
Other financing CF items (3,067) (3,262) (4,416) (9,717) (11,584) 5,294 (5,294) 0
Cash flow from financing (2,650) (3,844) 66,956 12,363 (6,318) 60,097 20,050 36,174
Forex effect/others 33 0 0 0 0 0 0 0
Change in cash 91 1,941 1,719 (122) (2,028) 18,834 (15,247) (3,234)
Free cash flow 2,665 4,654 (66,387) (13,812) 6,076 (41,263) (35,297) (39,408)

Source: Company, Daiwa forecasts

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Financial summary continued …

Balance sheet (Rs m)

As at 31 Mar 2006 2007 2008 2009 2010 2011E 2012E 2013E
Cash & short-term investment 989 3,395 4,715 5,093 3,030 21,865 6,617 3,384
Inventory 9,242 10,121 21,817 29,246 28,667 34,234 44,706 48,403
Accounts receivable 2,292 2,460 5,391 3,991 6,964 7,929 11,747 14,252
Other current assets 14,931 8,815 9,284 12,600 16,038 16,038 16,038 16,038
Total current assets 27,454 24,790 41,207 50,929 54,700 80,065 79,109 82,077
Fixed assets 83,799 102,020 208,017 278,943 284,090 358,493 421,847 515,201
Goodwill & intangibles 0 0 0 0 0 0 0 0
Other non-current assets 851 2,489 12,527 13,242 18,076 18,076 18,076 18,076
Total assets 112,104 129,299 261,751 343,115 356,865 456,634 519,031 615,353
Short-term debt 2,186 1,416 8,651 11,258 0 0 0 0
Accounts payable 6,128 22,120 40,293 78,395 74,735 97,812 107,295 129,075
Other current liabilities 17,073 580 6,519 3,982 5,741 5,741 5,741 5,741
Total current liabilities 25,388 24,116 55,462 93,634 80,476 103,553 113,036 134,816
Long-term debt 38,774 35,090 106,145 147,777 161,730 165,730 156,344 194,344
Other non-current liabilities 7,420 15,455 19,336 20,932 19,901 19,901 22,695 25,490
Total liabilities 71,582 74,661 180,944 262,344 262,107 289,185 292,075 354,650
Share capital 4,360 4,430 4,760 4,760 4,661 5,021 5,333 5,333
Reserves/R.E./others 36,162 50,208 74,129 73,280 87,911 161,188 220,382 254,129
Shareholders' equity 40,522 54,638 78,888 78,040 92,572 166,208 225,715 259,463
Minority interests 0 0 1,919 2,732 2,187 1,241 1,241 1,241
Total equity & liabilities
112,104 129,299 261,751 343,115 356,865 456,634 519,031 615,353
Net debt/(cash) 39,972 33,111 110,081 153,942 158,700 143,866 149,727 190,960
BVPS (Rs) 254 327 406 402 480 733 877 1,009

Key ratios (%)

Year to 31 Mar 2006 2007 2008 2009 2010 2011E 2012E 2013E
Sales (YoY) (7.5) 38.4 45.6 27.9 19.0 27.2 31.7 9.2
EBITDA (YoY) (25.6) 59.1 25.2 (14.3) 36.5 19.8 39.9 12.1
Operating profit (YoY) (32.6) 70.1 20.0 (27.1) 39.0 19.7 55.6 16.0
Net profit (YoY) 1.6 53.2 11.1 (33.7) 51.1 8.9 79.2 18.5
EPS (YoY) (11.6) 43.2 (5.7) (33.7) 51.1 (8.7) 57.1 18.5
Gross-profit margin 51.8 52.9 49.9 39.6 40.8 39.0 42.5 43.1
EBITDA margin 28.3 32.5 27.9 18.7 21.5 20.2 21.5 22.1
Operating-profit margin 21.7 26.6 22.0 12.5 14.6 13.8 16.3 17.3
ROAE 28.4 30.6 23.8 13.3 18.5 13.1 15.4 14.7
ROAA 9.1 11.3 7.8 3.3 4.4 4.1 6.1 6.2
ROCE 18.5 26.4 19.1 9.2 11.2 11.3 14.4 14.3
ROIC 12.5 18.3 13.4 7.2 8.0 8.0 10.5 10.1
Net debt to equity 98.6 60.6 139.5 197.3 171.4 86.6 66.3 73.6
Effective tax rate 33.6 32.5 31.6 23.0 29.4 32.0 30.0 30.0
Accounts receivable (days) 14.6 10.1 11.5 10.7 10.5 11.3 11.3 13.7
Payables (days) 32.6 60.3 91.4 135.9 147.4 130.6 117.9 124.4
Net interest cover (x) 3.7 5.7 4.8 1.7 2.5 3.5 5.0 5.7
Net dividend payout 15.1 14.9 16.1 8.8 2.3 14.4 4.3 3.6
Source: Company, Daiwa forecasts

Company profile
JSW Steel is India’s leading flat-steel producer and the country’s biggest exporter of galvanised steel. Currently, the company
has operations in India (7.8m tpa operational) and the US (1.2m tpa). It is expanding its Vijaynagar facility to become a 10m tpa
single-location plant. JSW Steel produces steel through a mix of Corex and blast furnaces.

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19 May 2011

EBITDA/t will continue to rise due to the company’s

efforts to reduce its iron-ore costs.

4Q FY11 results: strong

Strong 4Q performance performance driven by higher
ASPs
Further 2m tpa brownfield expansion JSW Steel’s 4Q FY11 results were much better than
announced … both we and the market expected. They were strong at
the operational level, and contained no extraordinary
items. The strong results were due largely to higher-
Slight upward revisions to than-expected steel ASPs. The company recorded a
earnings forecast consolidated EBITDA/t of US$208, compared with our
forecast of US$170. The highlights of the result were as
We have revised up our EBITDA forecasts slightly, by follows:
1.4% for FY12 and by 3.7% for FY13. These revisions • Sales volume in line with our expectation: At
were driven largely by upward adjustments to our ASP the standalone level, the 4Q FY11 sales volume of
assumptions. For FY12, we have adjusted down our 1.733mt (up 11.2% YoY, up 8.3% QoQ) was in line
steel sales-volume assumption by 3.4%, on account of with our forecast of 1.722mt. However, the ASP of
one-quarter delay in the commissioning its 3.2mtpa US$926/t was 2.4% higher than our forecast of
steel-capacity expansion. However, despite our lower US$905/t. At the consolidated level, the ASP of
steel-sales volume assumption, the upward adjustment US$911/t (up 21.2% YoY, up 11% QoQ) compared
to our ASP assumption of 4.9% for FY12 has resulted in with our expectation of US$878/t.
a slight upward revision to our FY12 EBITDA forecast.
• Strong financial 4Q FY11 results: JSW Steel’s
JSW Steel: revisions to our forecasts consolidated net sales of Rs72.8bn (up 32.9% YoY,
FY12E FY13E up 21.3% QoQ) were 4% higher than we expected,
Previous New Change (%) Previous New Change (%) due mainly to higher-than expected steel ASPs.
Sales volume (mt) 8.9 8.6 (3.4) 9.8 9.8 0.0
Accordingly, its consolidated EBITDA of Rs16.6bn
Blended ASP 774 812 4.9 739 785 6.3
Net sales 313,639 317,603 1.3 326,373 346,798 6.3
(up 25.6% YoY, up 63.5%QoQ) was 22.3% higher
EBITDA 67,344 68,272 1.4 73,816 76,556 3.7 than our forecast. The consolidated net profit of
EBITDA/t (US$/t) 166 175 5.0 167 173 3.7 Rs7.94bn was up 54.2% YoY and 172.1% QoQ.
Adj. PAT 28,678 29,732 3.7 34,743 35,235 1.4
Source: Daiwa forecasts • EBITDA/t of US$208: At the consolidated level,
JSW Steel’s EBITDA/t of US$208 for 4Q FY11 was
Accordingly, after adjusting upward our steel-price up significantly from US$139 for 3Q FY11. This was
assumptions, we have revised up our FY12 and FY13 22% higher than our forecast, driven mainly by
PAT forecasts by 3.7% and 1.4%, respectively. higher ASPs and lower-than-expected costs.
• US operation remains a laggard but
Our steel sales-volume assumption is lower management expects a substantial
than management’s guidance improvement in FY12: JSW Steel’s US operation
The company has guided for crude-steel production of continues to perform poorly, with its plate and pipe
8.75mt and steel sales of 9mt for FY12. However, we mills barely operational at capacity-utilisation rates
have factored in 8.2mt of crude-steel production and of around 5% for 4Q FY11. It recorded EBITDA of
8.6mt of steel sales for FY12, which are 6.2% and 4.5%, US$4.6m and a net loss of US$16.25m for 4Q FY11,
respectively, lower than management’s guidance. driven largely by the extremely low capacity-
utilisation rates. For the whole of FY11, the capacity-
We forecast JSW Steel’s EBITDA/t to increase to utilisation rates for its plate mill and pipe mill
Rs7,942 (US$175) for FY12 from Rs7,591 (US$165) for averaged around 12% and 8%, respectively.
FY11. We attribute this largely to higher ASPs and cost Management guides for a capacity-utilisation rate of
benefits from the commissioning of its sinter and 40% for its US operation for FY12 as it envisages a
beneficiation plant. Management has guided for an strong recovery in steel demand in the oil and gas
EBITDA/t of Rs8,000 (US$178) for FY12, which is segment. However, we believe the company will still
largely in line with our expectation. We believe the record a loss at the net level in FY12. Our forecast of

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19 May 2011

an FY12 net loss of US$22m is based on our 1%. Although it has until September 2011 to complete
assumptions of capacity-utilisation rates of 40% and the refinancing, the company plans to do so much
30% for its plate and pipe mills, respectively. earlier than this.

JSW Steel: consolidated quarterly results snapshot

Rs m 4Q FY11 4Q FY10 YoY % 3Q FY11 % QoQ Expansion projects: lots on offer
Net sales (t) 1,765,502 1,587,214 11.2 1,629,729 8.3
Blended realisation (US$/t) 911 752 21.2 821 11.0 to drive earnings growth
Net sales 72,833 54,807 32.9 60,026 21.3
EBITDA 16,620 13,234 25.6 10,164 63.5
EBITDA/t 9,414 8,338 12.9 6,237 50.9
3.2m tpa capacity expansion: The 3.2m tpa
EBITDA in US$/t $208 $182 14.6 $139 49.6 expansion is now scheduled to be commissioned by
EBITDA margin (%) 22.8 24.1 -133bps 16.9 589bps June 2011, compared with the previous timeline by
PAT 7,936 5,148 54.2 2,917 172.1 April 2011. According to management, this delay of one
Net-profit margin (%) 10.9 9.4 150bps 4.9 604bps quarter is due mainly to delays related to the supply of
Source: Company
the blast-furnace equipment. However, it has already
started heating the stoves that will provide the hot blast
Turnaround at Ispat: 4Q FY11 inside the furnace. We believe that once the blast
furnace is ready, the hot metal tapping will be faster
performance driven by increased than the normal schedule, as all its ancillary equipment
production and lower interest is already ready/commissioned.
costs As a part of the expansion, JSW Steel has already
commissioned: 1) a 5.75m tpa sinter plant in March
Ispat’s (49.3%-owned by JSW Steel) strong 4Q FY11 2011, 2) a steel melting shop (casters, converters), and
results were driven largely by a pick-up in capacity 3) two coke oven batteries (out of four with a total
utilisation. In 4Q FY11, Ispat produced 0.729mt of hot- capacity of 1.92m tpa). We believe the commissioning
rolled coil (HRC) (capacity-utilisation rate of 88%), of the sinter plant will enable the company to replace
compared with 0.262mt for 3Q FY11 (capacity- lump with sinter, and help to lower its iron-ore costs.
utilisation rate of 32%, as the plant was shut down We forecast the company’s weighted-average iron-ore
partially during 3Q FY11). cost to decline from US$94/t for FY11 to US$85/t for
FY12.
Ispat’s 4Q FY11 EBITDA of Rs4.06bn compares with a
loss of Rs1.7bn recorded for 3Q FY11. Ispat also turned The company now expects to commission a 3.2m tpa
PAT positive at Rs0.7bn for 4Q FY11 after recording a blast furnace and a 2.4m tpa sinter plant in 1Q FY12.
negative PAT for the preceding three quarters (from 1Q Following the expansion, JSW Steel’s capacity at
FY11 to 3Q FY11). Vijaynagar would increase to 10m tpa from 6.8m tpa
currently.
The company also benefited from a decline in interest
costs for 4Q FY11 (down 31.5% QoQ). This was due Expansion from 10m tpa to 12m tpa at
largely to the repayment of Rs5.2bn of debt from the Vijaynagar: The company has also announced a
Rs21.6bn cash received from JSW Steel in January further expansion of 2m tpa of steel capacity at its
2011. About Rs11.6bn was used for working-capital Vijaynagar facility through debottlenecking at its
purposes, with the balance held in fixed deposits. existing furnaces and setting up a new melt shop using
an electric arc furnace. The company estimates the cost
Ispat: quarterly results snapshot
of project at Rs27bn, and expects to complete it by
Rs m 4Q FY11 4Q FY10 YoY % 3Q FY11 QoQ %
Net sales 27,215 24,843 9.5 9,784 178.2
June 2013.
EBITDA 4,066 5,302 (23.3) (1,695) n.a.
EBITDA margin (%) 14.9 21.3 (640bps) (17.3) n.a. Other projects: JSW Steel has already commissioned
Reported PAT 700 223 214.2 (4,093) n.a. the first phase of its beneficiation plant (output
Adj .PAT 352 223 57.4 (4,093) n.a.
capacity of 10m tpa) and the next phase of its
Net-profit margin (%) 1.3 0.9 39bps (41.8) n.a.
Source: Company
expansion (with a further 10m tpa of beneficiation
capacity) is scheduled to be commissioned by
However, the PAT was inflated by a one-off gain from September 2011. The beneficiation plant will enable the
the repayment of a Rs350m loan. Adjusting for this, the company to utilise low-cost lower-grade iron ore
PAT was Rs352m for 4Q FY11. JSW plans to (around 54% Fe content) that would otherwise not
restructure its outstanding high-interest loans at Ispat, have been fed directly into a blast furnace.
and reduce the effective interest rate at Ispat by around
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JSW Bengal project
The company has received all the necessary clearances
to set up a 3mt greenfield steel plant, accompanied by
300MW of captive power (CPP). Previously, it had
envisaged a 4.5m tpa blast furnace, along with 660MW
of CPP. However, as the company has received clearance
for 3m tpa and is going ahead with implementing this
(as against its earlier plan for 4.5m tpa, it has decided to
go ahead and set up the lower capacity plant. The
company had earlier envisaged total capex of Rs150bn
for the greenfield steel plant. However, with the scope of
the project revised, the company is unable to provide
specific guidance on the capex for this project in FY12/13.
However, we believe the company will spend around
Rs30bn in FY13 on the JSW Bengal project.
2m tpa cold-rolling mill (CRM) project
JSW is collaborating with JFE Steel (5411 JP, ¥2,087,
Hold [3]) to set up a 2m tpa automotive-grade CRM.
JSW plans to incur total capex of Rs40.25bn on the
new CRM, which is expected to be commissioned in
FY13/14. The mill will cater to the higher end of the
automotive market, with JFE Steel supplying the
technology and also helping JSW Steel to set up the
plant to meet customer specifications.
Self-sufficiency in power: The company also
commissioned a 300MW power plant in FY11, taking
its total power capacity to 620MW at the end of FY11.
This should ensure that JSW Steel can meet its power
requirements for its 6.8m tpa steel plant from internal
sources. However, the company still plans to
commission an additional 300MW of power by
September-December 2011, which should ensure that it
has sufficient captive power to supply to its 3.2m tpa
capacity expansion as well.
The company has announced Rs150bn of capex over
the next two years.
JSW Steel: FY12-13 capex plans
Key projects Amount (Rs bn)
Cold-rolling mill – 2
Expansion from 10m tpa to 12m tpa
Ongoing projects
Maintenance capex
Supplier payments/acceptances
Total
Source: company
We believe the capex on the new CRM will focus on
automotive steel, and that it will help to boost the
company’s margins. The 2m tpa expansion at
Vijaynagar, which will be a mix of new sponge-iron
capacity and debottlenecking of the existing blast
furnace, should also help to increase efficiency and
accelerate the company’s absorption of fixed costs.
Lastly, provision for the payment of Rs29bn for
Materials / India
JSTL IN
19 May 2011
suppliers/acceptances should help reduce the overall
debt burden further.
We remain comfortable with the company’s debt level
despite the new capex. However, leverage higher than 1x
would call for a fresh look at the stock, in our view. We
believe JSW Steel is unlikely to breach its internal target
of leverage not exceeding 1x, thus making way for
expansion-driven growth keeping leverage under control.
Overseas natural resources
projects get operational
Its coking-coal and iron-ore mines in North and South
America have started production and should provide
natural hedging support to a certain extent.
Chile iron-ore mine: JSW Steel commenced
operations at its iron-ore mine in Chile in November
2010, and has shipped two consignments to date.
Management is guiding for 1mt of production from Chile
in FY12, and that this can be expanded to 5m tpa over
the longer term. The cost of production of iron ore at its
Chile mine is around US$65-70/t, and we estimate it has
the potential to contribute around US$50m to the
company’s EBITDA in FY12. We would, however,
highlight that iron ore from Chile will not be used
directly by JSW Steel’s plant in India, but will provide a
natural hedge for spot-market purchases of iron ore
made by the company in India for its steel production.
US coking-coal mines: The company has received
all of the required permits, along with environment
clearance for its three coking-coal mines in the US. It
obtained the final permit on 13 May 2011, and is now
on track for 0.5m tpa of production in FY12. The
company expects to start production from these mines
from 1 July 2011, and believes output from these mines
can be ramped up to 3m tpa over the longer term.
40.3
27.0 Valuation and recommendation
37.3
16.5
29.0
We maintain our Buy (1) rating for JSW Steel, with a
150.0 new six-month target price of Rs1,290 (down from
Rs1,361 previously). We continue to value the stock at a
7.0x EV/EBITDA multiple, the stock’s average one-
year-forward multiple over the past four years, on our
FY12 EBITDA forecast.
We have lowered our target price despite revising up
our earnings forecasts, largely after factoring in the
higher capex requirement than we forecast previously,
as a result of the new expansion projects announced by
the company.
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 Materials / India
JSTL IN
19 May 2011

prices as the key risks to our forecasts. Another

Key risks significant risk to our call would be any delay in the
ramp-up of the yet-to-be-commissioned 3.2m tpa
We see project-execution delays, lower-than-forecast brownfield expansion at the Vijaynagar facility in India.
steel prices and higher-than-forecast raw-material

Global peer valuation comparison (2011E/FY12E)

Market cap Share price Net sales EBITDA EBITDA margin Net margin EV/EBITDA Est. fwd PER PBR ROE
Company Curr. BBG Ticker Rating (US$bn) (17 May 2011) (m) (m) (%) (%) EV (m) (x) (x) (x) (%)
Arcelor Mittal € MT NA NR 52.1 23.59 66,816 7,962 12 5 50,711 6.4 11.5 0.8 7
Nippon Steel ¥ 5401 JP Outperform (2) 20.4 245.00 4,703,361 530,517 11 3 2,947,277 5.6 9.4 0.8 9
JFE Holdings ¥ 5411 JP Hold (3) 15.9 2,113.00 3,633,808 483,378 13 3 2,190,319 4.5 8.9 0.7 9
Sumitomo Metal ¥ 5405 JP Outperform (2) 9.6 163.00 1,678,877 265,902 16 5 1,714,486 6.4 9.7 0.9 10
Posco W 005490 KS Outperform (2) 36.4 455,000.00 40,313,868 7,628,070 19 11 40,363,758 5.3 7.9 1.0 12
China Steel NT$ 2002 TT Hold (3) 16.4 35.00 259,856 44,052 17 12 551,393 12.5 14.6 1.7 12
Baoshan Rmb 600019 CH Buy (1) 18.0 6.68 229,413 35,290 15 6 144,361 4.1 8.2 1.0 12
Angang HK$ 347 HK Outperform (2) 10.0 9.35 104,921 12,909 12 3 97,010 7.5 20.7 1.2 6
Wuhan Iron & Steel Rmb 600005 CH Hold (3) 6.8 4.36 96,993 8,524 9 3 50,307 5.9 12.4 1.1 7
Maanshan HK$ 323 HK Hold (3) 5.1 4.00 72,737 7,621 10 2 40,184 5.3 20.1 1.1 5
ThyssenKrupp € TKA GR NR 23.8 32.66 48,815 3,783 8 2 21,997 5.8 15.1 1.6 11
US Steel US$ X US Underperform (4) 6.5 44.89 20,965 1,701 8 2 9,572 5.6 12.9 1.5 13
Nucor US$ NUE US Underperform (4) 13.6 43.08 19,721 2,235 11 5 18,542 8.3 18.0 1.8 13
A.K. Steel US$ AKS US NR 1.6 14.10 6,828 447 7 2 2,154 4.8 12.5 2.1 18
Steel Dynamics US$ STLD US NR 3.7 17.02 8,137 1,087 13 5 5,530 5.1 8.5 1.6 19
Tata Steel * Rs TATA IN Buy (1) 12.2 573.95 1,371,954 218,852 16 7 940,259 4.3 5.8 2.0 27
Steel Authority of India * Rs SAIL IN Outperform (2) 13.3 145.20 495,773 130,027 26 16 674,318 5.2 8.2 1.3 18
JSW Steel * Rs JSTL IN Buy (1) 4.6 923.50 317,603 68,272 21 9 387,369 5.3 7.9 1.1 15
Jindal Steel * Rs JSPIN Hold (3) 13.4 645.20 155,612 90,830 58 38 660,722 7.3 10.1 3.1 35
Bhushan Steel * Rs BHUS IN Buy (1) 2.1 447.80 75,040 25,155 34 16 261,396 10.4 7.8 1.5 22
Average including India companies 17 8 6.3 11.5 1.4 14
Average ex-India companies 12 5 6.2 12.7 1.2 11
Source: Bloomberg, *denotes Daiwa forecasts

Global peer valuation comparison (2012E/FY13E)

Market cap Share price Net sales EBITDA margin Net margin EV/EBITDA Est. fwd PBR ROE
Name of the company Cur BBG Ticker Rating (US$bn) (17 May 2011) (m) EBITDA (%) (%) EV (m) (x) PER (x) (x) (%)
Arcelor Mittal € MT NA NR 52.1 23.59 70,978 9,576 13 6 49,106 5.1 8.1 0.8 9
Nippon Steel ¥ 5401 JP Outperform (2) 20.4 245.00 4,866,567 519,407 11 4 3,091,928 6.0 8.8 0.8 8
JFE Holdings ¥ 5411 JP Hold (3) 15.9 2,113.00 3,801,927 503,842 13 4 2,443,833 4.9 7.4 0.7 10
Sumitomo Metal ¥ 5405 JP Outperform (2) 9.6 163.00 1,794,176 277,873 15 5 1,573,408 5.7 8.7 0.8 11
Posco W 005490 KS Outperform (2) 36.4 455,000.00 40,987,943 8,221,534 20 12 39,599,559 4.8 7.4 0.9 12
China Steel NT$ 2002 TT Hold (3) 16.4 35.00 270,409 50,253 19 15 546,964 10.9 11.6 1.6 14
Baoshan Rmb 600019 CH Buy (1) 18.0 6.68 245,889 39,765 16 7 135,716 3.4 6.9 0.9 13
Angang HK$ 347 HK Outperform (2) 10.0 9.35 110,881 14,584 13 4 93,306 6.4 16.0 1.1 7
Wuhan Iron & Steel Rmb 600005 CH Hold (3) 6.8 4.36 103,221 10,327 10 4 47,800 4.6 9.4 1.0 10
Maanshan HK$ 323 HK Hold (3) 5.1 4.00 75,817 8,795 12 3 37,197 4.2 13.0 1.0 8
ThyssenKrupp € TKA GR NR 23.8 32.66 52,287 4,894 9 3 21,082 4.3 9.1 1.4 16
US Steel US$ X US Underperform (4) 6.5 44.89 22,253 2,348 11 4 9,091 3.9 7.1 1.3 21
Nucor US$ NUE US Underperform (4) 13.6 43.08 21,244 2,790 13 6 17,895 6.4 13.3 1.6 16
A.K. Steel US$ AKS US NR 1.6 14.10 7,172 546 8 2 2,096 3.8 8.7 1.7 24
Steel Dynamics US$ STLD US NR 3.7 17.02 8,612 1,242 14 6 5,871 4.7 7.3 1.4 20
Tata Steel * Rs TATA IN Buy (1) 12.2 573.95 1,421,464 239,255 17 8 830,214 3.5 5.0 1.5 25
Steel Authority of India * Rs SAIL IN Outperform (2) 13.3 145.20 539,623 161,146 30 19 696,997 4.3 6.5 1.0 17
JSW Steel * Rs JSTL IN Buy (1) 4.6 923.50 346,798 76,556 22 10 428,603 5.2 6.7 0.9 15
Jindal Steel * Rs JSPIN Hold (3) 13.4 645.20 181,102 109,105 60 36 641,257 5.9 9.1 2.3 29
Bhushan Steel * Rs BHUS IN Buy (1) 2.1 447.80 100,422 39,861 40 15 266,963 6.7 6.2 1.2 23
Average including India companies 18 9 5.2 8.8 1.2 15
Average ex-India companies 13 6 5.3 9.5 1.1 13
Source: Bloomberg, *denotes Daiwa forecasts

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Daiwa’s Asia Pacific Research Directory
Hong Kong
Regional Research Head; Pan Asia Research Nagahisa MIYABE (852) 2848 4971 nagahisa.miyabe@hk.daiwacm.com
Regional Research Co-head Christopher LOBELLO (852) 2848 4916 christopher.lobello@hk.daiwacm.com
Head of Product Management John HETHERINGTON (852) 2773 8787 john.hetherington@hk.daiwacm.com
Product Management Tathagata Guha ROY (852) 2773 8731 tathagata.guharoy@hk.daiwacm.com
Head of China Research; Chief Economist (Greater China) Mingchun SUN (852) 2773 8751 mingchun.sun@hk.daiwacm.com
Macro Economy (Hong Kong, China) Kevin LAI (852) 2848 4926 kevin.lai@hk.daiwacm.com
Regional Chief Strategist; Strategy (Regional) Colin BRADBURY (852) 2848 4983 colin.bradbury@hk.daiwacm.com
Strategy (Regional) Mun Hon THAM (852) 2848 4426 munhon.tham@hk.daiwacm.com
Head of Hong Kong Research; Regional Property Coordinator; Jonas KAN (852) 2848 4439 jonas.kan@hk.daiwacm.com
Co-head of Hong Kong and China Property; Property Developers (Hong Kong)
Automobiles and Components (China) Jeff CHUNG (852) 2773 8783 jeff.chung@hk.daiwacm.com
Head of Greater China FIG; Banking (Hong Kong, China) Grace WU (852) 2532 4383 grace.wu@hk.daiwacm.com
Banking (Hong Kong, China) Sophia HUO (852) 2532 4380 sophia.huo@hk.daiwacm.com
Banking (Hong Kong, China) Queenie POON (852) 2532 4381 queenie.poon@hk.daiwacm.com
Insurance Jennifer LAW (852) 2773 8745 jennifer.law@hk.daiwacm.com
Capital Goods –Electronics Equipments and Machinery; IT/Electronics – Tech Hardware Joseph HO (852) 2848 4443 joseph.ho@hk.daiwacm.com
(Hong Kong, China)
Consumer/Retail (Hong Kong, China) Peter CHU (852) 2848 4430 peter.chu@hk.daiwacm.com
Consumer/Retail (China) Nicolas WANG (852) 2848 4963 nicolas.wang@hk.daiwacm.com
Head of HK and China Gaming and Leisure; Hotels, Restaurants and Leisure – Casinos Gavin HO (852) 2532 4384 gavin.ho@hk.daiwacm.com
and Gaming (Hong Kong); Capital Goods – Conglomerate (Hong Kong)
Regional Head of IT/Electronics; IT/Electronics – Semiconductor and Solar Pranab Kumar SARMAH (852) 2848 4441 pranab.sarmah@hk.daiwacm.com
(Regional, Taiwan, Singapore, Hong Kong and China)
Co-head of Regional IT/Electronics; IT/Electronics – Semiconductor/IC Design (Regional) Eric CHEN (852) 2773 8702 eric.chen@hk.daiwacm.com
IT/Technology Hardware – PC Hardware (Taiwan) Calvin HUANG (852) 2773 8782 calvin.huang@hk.daiwacm.com
IT/Electronics - Semiconductor/IC Design (Taiwan) Ashley CHUNG (852) 2848 4431 ashley.chung@hk.daiwacm.com
Regional Head of Materials; Materials/Energy (Regional) Alexander LATZER (852) 2848 4463 alexander.latzer@hk.daiwacm.com
Materials (China) Felix LAM (852) 2532 4341 felix.lam@hk.daiwacm.com
Pan Asia Research, Consumer, Pharmaceuticals and Healthcare (China) Hongxia ZHU (852) 2848 4460 hongxia.zhu@hk.daiwacm.com
Pan Asia Research Kenji SERIZAWA (852) 2532 4159 kenji.serizawa@hk.daiwacm.com
Head of Hong Kong and China Property; Property Developers (Hong Kong, China) Danny BAO (852) 2773 8715 danny.bao@hk.daiwacm.com
Property (Hong Kong, China) Yannis KUO (852) 2773 8735 yannis.kuo@hk.daiwacm.com
Regional Head of Small/Medium Cap; Small/Medium Cap (Regional) Mark CHANG (852) 2773 8729 mark.chang@hk.daiwacm.com
Small/Medium Cap (Regional) John CHOI (852) 2773 8730 john.choi@hk.daiwacm.com
Regional Head of Telecommunications; Telecommunications (Regional, Greater China); Marvin LO (852) 2848 4465 marvin.lo@hk.daiwacm.com
Internet (China)
Transportation – Marine and Transportation Infrastructure (Regional) Jimmy LAM (852) 2848 4024 jimmy.lam@hk.daiwacm.com
Transportation – Aviation, Land and Transportation Infrastructure (Regional) Kelvin LAU (852) 2848 4467 kelvin.lau@hk.daiwacm.com
Transportation –Transportation Infrastructure; Capital Goods – Construction and Edwin LEE (852) 2532 4349 edwin.lee@hk.daiwacm.com
Engineering (China)
Regional Head of Clean Energy and Utilities; Utilities; Power Equipment; Dave DAI (852) 2848 4068 dave.dai@hk.daiwacm.com
Renewables (Hong Kong, China)
Head of Custom Products Group; Custom Products Group Justin LAU (852) 2773 8741 justin.lau@hk.daiwacm.com
Custom Products Group Philip LO (852) 2773 8714 philip.lo@hk.daiwacm.com
Custom Products Group Jibo MA (852) 2848 4489 jibo.ma@hk.daiwacm.com

South Korea
Head of Research; Strategy; Banking/Finance Chang H LEE (82) 2 787 9177 chlee@kr.daiwacm.com
Automobiles; Shipbuilding; Steel Sung Yop CHUNG (82) 2 787 9157 sychung@kr.daiwacm.com
Banking/Finance Anderson CHA (82) 2 787 9185 anderson.cha@kr.daiwacm.com
Capital Goods (Construction and Machinery) Mike OH (82) 2 787 9179 mike.oh@kr.daiwacm.com
Consumer/Retail Sang Hee PARK (82) 2 787 9165 sanghee.park@kr.daiwacm.com
IT/Electronics (Tech Hardware and Memory Chips) Jae H LEE (82) 2 787 9173 jhlee@kr.daiwacm.com
IT Electronics (Tech Hardware) Steve OH (82) 2 787 9195 steve.oh@kr.daiwacm.com
Materials (Chemicals); Oil and Gas Daniel LEE (82) 2 787 9121 daniel.lee@kr.daiwacm.com
Pan Asia Research; Small/Medium Caps Yumi KIM (82) 2 787 9838 yumi.kim@kr.daiwacm.com
Telecommunications; Software (Internet/Online Games) Thomas Y KWON (82) 2 787 9181 yskwon@kr.daiwacm.com

-9-
Taiwan
Head of Taiwan Research; Pan Asia Research Hirokazu Mitsuda (886) 2 2758 8754 h.mitsuda@daiwacm-cathay.com.tw
Co-head of Research; Strategy Alex YANG (886) 2 2345 3660 alex.yang@daiwacm-cathay.com.tw
Banking/Diversified Financials Ling TANG (886) 2 8789 5158 ling.tang@daiwacm-cathay.com.tw
Consumer/Retail Yoshihiko KAWASHIMA (886) 2 8780 5987 y.kawashima@daiwacm-cathay.com.tw
IT/Technology Hardware (Communications Equipment); Software; Small/Medium Caps Christine WANG (886) 2 8788 1531 christine.wang@daiwacm-cathay.com.tw
IT/Technology Hardware (Handsets and Components) Alex CHANG (886) 2 8788 1584 alex.chang@daiwacm-cathay.com.tw
IT/Technology Hardware (PC Hardware - Panels) Chris LIN (886) 2 8788 1614 chris.lin@daiwacm-cathay.com.tw
IT/Technology Hardware (PC Components) Jenny SHIH (886) 2 8780 1326 jenny.shih@daiwacm-cathay.com.tw
Materials; Conglomerates Albert HSU (886) 2 8786 2212 albert.hsu@daiwacm-cathay.com.tw

India
Head of India Equities Strategy Jaideep GOSWAMI (91) 22 6622 1010 jaideep.goswami@in.daiwacm.com
Deputy Head of Research; Strategy; Banking/Finance Punit SRIVASTAVA (91) 22 6622 1013 punit.srivastava@in.daiwacm.com
All Industries; Pan Asia Research Fumio YOKOMICHI (91) 22 6622 1003 fumio.yokomichi@in.daiwacm.com
Automobiles Ambrish MISHRA (91) 22 6622 1060 ambrish.mishra@in.daiwacm.com
Capital Goods; Utilities Jonas BHUTTA (91) 22 6622 1008 jonas.bhutta@in.daiwacm.com
Materials Vishal CHANDAK (91) 22 6622 1006 vishal.chandak@in.daiwacm.com
Oil & Gas; Construction; Small/Medium Caps Atul RASTOGI (91) 22 6622 1020 atul.rastogi@in.daiwacm.com
Pharmaceuticals and Healthcare; Consumer Kartik A. MEHTA (91) 22 6622 1012 kartik.mehta@in.daiwacm.com
Real Estate Amit AGARWAL (91) 22 6622 1063 amit.agarwal@in.daiwacm.com

Singapore
Head of Research; Pan Asia Research Tatsuya TORIKOSHI (65) 6321 3050 tatsuya.torikoshi@sg.daiwacm.com
Chief Economist, Asia Ex-JP; Macro Economy (Regional) Prasenjit K BASU (65) 6321 3069 p-k.basu@sg.daiwacm.com
Global Director of Quantitative Research; Quantitative Research Deep KAPUR (65) 6321 3079 deep.kapur@sg.daiwacm.com
Quantitative Research Josh CHERIAN (65) 6499 6549 josh.cherian@sg.daiwacm.com
Quantitative Research Suzanne HO (65) 6499 6545 suzanne.ho@sg.daiwacm.com
Regional Head of Banking/Finance; Banking; Property and REITs David LUM (65) 6329 2102 david.lum@sg.daiwacm.com
Banking (ASEAN) Srikanth VADLAMANI (65) 6499 6570 srikanth.vadlamani@sg.daiwacm.com
Consumer; Food and Beverage; Small/Medium Cap (ASEAN) Pyari MENON (65) 6499 6566 pyari.menon@sg.daiwacm.com
Head of ASEAN Oil and Gas; Oil and Gas (ASEAN and China); Capital Goods (Singapore) Adrian LOH (65) 6499 6548 adrian.loh@sg.daiwacm.com
Head of ASEAN & India Telecommunications; Telecommunications (ASEAN & India) Ramakrishna MARUVADA (65) 6499 6543 ramakrishna.maruvada@sg.daiwacm.com

Australia
Resources/Mining/Petroleum David BRENNAN (61) 3 9916 1323 david.brennan@au.daiwacm.com

Japan
Industrials (Regional); Pan Asia Research Taiki KAJI (81) 3 5555 7174 taiki.kaji@jp.daiwacm.com
Industrials (Regional); Pan Asia Research Daijiro HATA (81) 3 5555 7178 daijiro.hata@jp.daiwacm.com

- 10 -
Daiwa’s Office
Office / Branch / Affiliate Address Tel Fax
DAIWA SECURITIES GROUP INC
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Daiwa Securities Capital Markets Co Ltd, Seoul Branch 6th Floor, Hana Daetoo Securities Bldg 27-3, Yeouido-Dong, (82) 2 787 9100 (82) 2 787 9191
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- 11 -
Disclaimer
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affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further
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Neither Daiwa Securities Capital Markets Co. Ltd. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees,
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nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any
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particular needs of any person.

Daiwa Securities Capital Markets Co. Ltd., its parent, holding, subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or
have positions in, or have other interests in the securities of the company under research including derivatives in respect of such securities or may have also performed investment banking and
other services for the issuer of such securities. The following are additional disclosures.

Japan
Daiwa Securities Capital Markets Co. Ltd and Daiwa Securities Group
Daiwa Securities Capital Markets Co. Ltd and Daiwa Securities Group: Daiwa Securities Capital Markets Co. Ltd is a subsidiary of Daiwa Securities Group.
Investment Banking Relationship
Within the preceding 12 months, The Affiliates of Daiwa Securities Capital Markets Co. Ltd.* has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the
securities of the following companies: Patel Engineering (PEC IN); International Taifeng Holdings Limited (873 HK); Sihuan Pharmaceutical Holdings Group Limited (460 HK); Strides
Arcolab Limited (STR IN); China Metal Resources Holding Limited (8071 HK); China 33 Media Group Limited (8087 HK); Sabana Shari’ah Compliant Industrial Real Estate Investment Trust
(SSREIT SP); SBI Holdings Inc. (6488 HK).
*Affiliates of Daiwa Securities Capital Markets Co. Ltd. for the purposes of this section shall mean any one or more of:
• Daiwa Capital Markets Hong Kong Limited
• Daiwa Capital Markets Singapore Limited
• Daiwa Capital Markets Australia Limited
• Daiwa Capital Markets India Private Limited
• Daiwa-Cathay Capital Markets Co., Ltd.
• Daiwa Securities Capital Markets Co. Ltd., Seoul Branch

Hong Kong
This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (“DHK”) which is regulated by the Hong Kong Securities and Futures Commission. Recipients of this
research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research.
Ownership of Securities
For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at http://www2.us.daiwacm.com/report_disclosure.html.
Investment Banking Relationship
For “Investment Banking Relationship”, please visit BlueMatrix disclosure Link at http://www2.us.daiwacm.com/report_disclosure.html.
Relevant Relationship (DHK)
DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.
DHK market making
DHK may from time to time make a market in securities covered by this research.

Singapore
This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional
investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of
investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to
disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets
Singapore Limited in respect of any matter arising from or in connection with the research.

Australia
This research is distributed in Australia by Daiwa Capital Markets Stockbroking Limited and it may only be distributed in Australia to wholesale investors within the meaning of the
Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research.
Ownership of Securities
For “Ownership of Securities” information, please visit BlueMatrix disclosure Link at http://www2.us.daiwacm.com/report_disclosure.html.

India
This research is distributed by Daiwa Capital Markets India Private Limited (DAIWA) which is an intermediary registered with Securities & Exchange Board of India. This report is not to be
considered as an offer or solicitation for any dealings in securities. While the information in this report has been compiled by DAIWA in good faith from sources believed to be reliable, no
representation or warranty, express of implied, is made or given as to its accuracy, completeness or correctness. DAIWA its officers, employees, representatives and agents accept no liability
whatsoever for any loss or damage whether direct, indirect, consequential or otherwise howsoever arising (whether in negligence or otherwise) out of or in connection with or from any use of
or reliance on the contents of and/or omissions from this document. Consequently DAIWA expressly disclaims any and all liability for, or based on or relating to any such information
contained in or errors in or omissions in this report. Accordingly, you are recommended to seek your own legal, tax or other advice and should rely solely on your own judgment, review and
analysis, in evaluating the information in this document. The data contained in this document is subject to change without any prior notice DAIWA reserves its right to modify this report as
maybe required from time to time. DAIWA is committed to providing independent recommendations to its Clients and would be happy to provide any information in response to any query
from its Clients. This report is strictly confidential and is being furnished to you solely for your information. The information contained in this document should not be reproduced (in whole or
in part) or redistributed in any form to any other person. We and our group companies, affiliates, officers, directors and employees may from time to time, have long or short positions, in and
buy sell the securities thereof, of company(ies) mentioned herein or be engaged in any other transactions involving such securities and earn brokerage or other compensation or act as advisor
or have the potential conflict of interest with respect to any recommendation and related information or opinion. DAIWA prohibits its analyst and their family members from maintaining a
financial interest in the securities or derivatives of any companies that the analyst cover. This report is not intended or directed for distribution to, or use by any person, citizen or entity which
is resident or located in any state or country or jurisdiction where such publication, distribution or use would be contrary to any statutory legislation, or regulation which would require DAIWA
and its affiliates/ group companies to any registration or licensing requirements. The views expressed in the report accurately reflect the analyst’s personal views about the securities and
issuers that are subject of the Report, and that no part of the analyst’s compensation was, is or will be directly or indirectly, related to the recommendations or views expressed in the Report.
This report does not recommend to US recipients the use of Daiwa Capital Markets India Private Limited or any of its non – US affiliates to effect trades in any securities and is not supplied
with any understanding that US recipients will direct commission business to Daiwa Capital Markets India Private Limited.

Taiwan
This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd and it may only be distributed in Taiwan to institutional investors or specific investors who have signed
recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to
Customers. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd in respect of any matter arising from or in connection with the research.

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United Kingdom
This research report is produced by Daiwa Securities Capital Markets Co., Ltd and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland,
Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Services Authority (“FSA”) and is a member of the London Stock
Exchange, Chi-X, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing
transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the
Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe
Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the
extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.
This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FSA and should not therefore be distributed to such Retail
Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the
protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.
Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at
http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory. Regulatory disclosures of investment banking relationships are available at
www2.us.daiwacm.com/report_disclosure.html.

Germany
This document has been approved by Daiwa Capital Markets Europe Limited and is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is
regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.

Dubai
This document has been distributed by Daiwa Capital Markets Europe Limited, Dubai Branch. Related financial products or services are intended only for professional clients and no other
person should act upon it. Daiwa Capital Markets Europe Limited is duly licensed and regulated by the Dubai Financial Services Authority.

United States
This report is distributed in the U.S. by Daiwa Capital Markets America Inc. (DCMA). It may not be accurate or complete and should not be relied upon as such. It reflects the preparer’s views
at the time of its preparation, but may not reflect events occurring after its preparation; nor does it reflect DCMA’s views at any time. Neither DCMA nor the preparer has any obligation to
update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any
recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine
whether any such recommendation is consistent with their own investment objectives, financial situation and needs. This report does not recommend to U.S. recipients the use of any of
DCMA’s non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients of this report will direct commission business to such non-U.S.
entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local
jurisdiction. Most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as a
process for doing so. As a result, the securities discussed in this report may not be eligible for sales in some jurisdictions. Customers wishing to obtain further information about this report
should contact DCMA: Daiwa Capital Markets America Inc., Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).
Ownership of Securities
For “Ownership of Securities” information please visit BlueMatrix disclosure Link at http://www2.us.daiwacm.com/report_disclosure.html.
Investment Banking Relationships
For “Investment Banking Relationships” please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html.
DCMA Market Making
For “DCMA Market Making” please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html.
Research Analyst Conflicts
For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html. The principal research analysts who prepared this
report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s)
covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12
months except as noted: no exceptions.
Research Analyst Certification
For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at http://www2.us.daiwacm.com/report_disclosure.html. The views about any and
all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the
firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual
analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.
The following explains the rating system in the report as compared to relevant local indices, based on the beliefs of the author of the report.
"1": the security could outperform the local index by more than 15% over the next six months.
"2": the security is expected to outperform the local index by 5-15% over the next six months.
"3": the security is expected to perform within 5% of the local index (better or worse) over the next six months.
"4": the security is expected to underperform the local index by 5-15% over the next six months.
"5": the security could underperform the local index by more than 15% over the next six months.
Additional information may be available upon request.

Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law
(This Notification is only applicable where report is distributed by Daiwa Securities Capital Markets Co. Ltd.)
If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the
following items.
• In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in
the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction.
• In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan.
• For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the
amount of the transaction will be in excess of the required collateral or margin requirements.
• There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices,
real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.
• There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.
• Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants.
*The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of
each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions
regarding the signing of the agreement with us.

Corporate Name: Daiwa Securities Capital Markets Co. Ltd.

Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.109
Memberships: Japan Securities Dealers Association, Financial Futures Association of Japan
Japan Securities Investment Advisers Association

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