Iron ore mine wins, Budget 2020 positive for JSW Steel; stock gains 2.9%

Weak Q3, expansion delay at Dolvi, losses at foreign arms led to price correction

JSW Steel remains in the news, now for good reasons, with the company winning two iron ore mines in Odisha. Besides, the Street’s expects that the government’s continued focus on infrastructure will bode well for steelmakers. 

JSW Steel’s stock, thus, gained 2.9 per cent on Monday after having corrected about 11 per cent since mid-January 2020. And, there could be more gains.

The company’s efforts on securing basic raw materials, such as iron ore for steel-making through fresh bidding of mines in states like Odisha, are a positive, and yielding results. 

JSW had secured some mines in Karnataka earlier but was only able to meet 8-10 per cent of its requirements. In fact, a rise in iron ore prices to around $95 a tonne in January, after plunging to sub-$80 levels in November last year, has raised concerns about the company’s profitability, given that JSW procures most of its raw material from external sources.

Thus, securing two iron ore mines is a positive and partly addresses the concerns. Now, the Street is eagerly looking forward to the outcome of other bids that JSW has made.

Among other positives for steel companies from the Budget, according to analysts at Emkay Global, could be monitoring of steel imports from countries with which India has free-trade agreements (FTAs). The aim is to detect diversions, if any, from other countries, routing their exports to India through FTA countries to avoid paying import duties. Cheap imports have been a matter of concern for most domestic steel players.

The other reason for JSW’s stock price correction since mid-January is some disappointment with the Q3 results. The company had reported a multi-quarter low profit of Rs 5,998 per tonne, down 50 per cent year-on-year and 7 per cent sequentially, because of the falling steel realisations. 

While losses in foreign subsidiaries had pulled down consolidated numbers, there was a disappointment on account of the six-month delay in the 5-MT capacity expansion at Dolvi plant, which was earlier to start by FY20 end. Because of this delay, analysts had cut their FY21 estimates, albeit slightly.

Yet, given the improving product mix, higher captive iron ore production (thereby, putting a check on costs and supporting margins over time), along with recently improved steel prices, analysts as those at Motilal Oswal Financial Services have maintained a positive outlook on JSW Steel.