Rising costs of raw material have dragged JSW Steel’s net profit for the third quarter ended December 31 as it dropped by 32 per cent. The company posted a net profit of Rs 292 crore as against Rs 430 crore for the corresponding period last year.
The total expenditure during the third quarter bloated to Rs 5,379 crore as against Rs 4,074 crore for the third quarter last year.
Joint Managing Director and group CFO Seshagiri Rao said, “The cost of production has gone up by 29 per cent on a quarter-on-quarter (q-o-q) basis due to the high costs of iron ore and coking coal. The price realisations have not gone up at the same pace.” He said the prices have gone up by just 10-13 per cent on a quarterly basis.
The company expects prices to firm up further from the current levels. Already, steel prices have notched up by 5-7 per cent since January 1.
Director (sales and marketing) Jayant Acharya said, “Our customers are restocking and generally, January to March is a good quarter for steel sales. The raw material cost impact, thus, will be seen in steel prices going forward.”
Rao said the quarter has been the highest ever in terms of sales volumes. The company sold 1.593 million tonnes of steel in the quarter as against 1.425 million tonnes in the corresponding period last year.
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“We were able to reduce our inventories by 60,000 tonne in the third quarter. From June to December 2010, we have been able to reduce our inventories to 3,74,000 tonne from 5,64,000 tonne,” he said. Net sales for the company rose to Rs 5,964.81 crore as against Rs 4,796.01 crore during the given period last year.
The company said it was trying to lower the production of semi-steel and is producing more of rolled steel as the margins are higher in the latter. “Our semis production has come down to 5 per cent from 19 per cent, and we are concentrating more on flat and long steel production,” Rao said. JSW Steel has also decided to set up a 2.3 million tonne cold rolling mill at its Vijayanagar steel plant for a total cost of Rs 4,025 crore. Rao said the project will be funded by a 2:1 debt to equity ratio.
Total debt requirement for the project will be Rs 2,675 crore and equity will be Rs 1,350 crore. The company said it was looking to complete the project, in two phases, by 2014-15. The company has prepaid Rs 800 crore of debt during the third quarter. Its debt gearing stood at 0.74:1 as against 0.80:1 for the corresponding period last year. The debt at the consolidated level stood at Rs 14,300 crore.