 "Demand, iron ore availability concerns for JSW Steel")
JSW Steel’s strong stand-alone performance for March quarter was helped by stable cost of production and better realisations at its Vijayanagar (Bellary) plant. Some improvement in operational performance at Dolvi (Maharashtra) unit helped. Foreign subsidiaries like US Plate and Pipe Mills (USPPM) remain a drag.
Profit is likely to improve, given benign input (coal and iron-ore) prices and firm rupee (some gains could be countered as firm rupee could hurt JSW’s exports). The gains, however, will also be restricted, given the subdued outlook for steel demand and realisations, say analysts.
These near-term concerns on demand and ore availability are reflected in analyst recommendations and targets. Of 15 polled by Bloomberg since the declaration of results on Tuesday, seven have buy, two hold and six sell ratings with consensus target of Rs 1,210 for the stock trading at Rs 1,204 levels.
JSW’s per tonne stand-alone Ebitda (earnings before interest, tax, depreciation and amortisation) at Rs 8,052 for March 2014 quarter was better than Rs 6,985 in the year-ago quarter. With stand-alone Ebitda increasing 47 per cent year-on-year and eight per cent sequentially to Rs 2,496 crore, the consolidated Ebitda also got a push to Rs 2,529 crore, up 46 per cent year-on-year.
The acquired 3.3 mt (million tonne) Dolvi unit is likely to see lower cost of production as pellet and coke oven plants have been commissioned. The company expects a turn in USPPM that reported an Ebitda loss of $4 million.
A positive is declining raw material prices. Global ore prices remain at a little below $100 a tonne. Coal is at $110 a tonne. The rupee depreciation provides further respite, making imported coal less expensive, as JSW Steel is mostly dependent on it.
Though the company expects more ore, with more C-grade mines in Karnataka starting production in 2014-15, this remains to be seen. JSW may have to continue sourcing some ore from outside the state. The recent iron-ore ban in Orissa is not good news. If it continues for long, it can strain the demand-supply equation in the country. The company has forecast for output growth of six per cent in 2014-15 to 12.9 mt and sales growth of five per cent to 12.5 mt. These look achievable. During 2013-14, the company had beaten its output forecast of 12 mt. Analysts say the output and sales forecasts could have been much better but for the outlook for steel demand growth and ore availability constraints have curbed these.
Also, the low demand and rupee appreciation may affect company’s exports, keeping these flat during 2014-15, say analysts. The company was able to export 3.1 mt during 2013-14. Jayant Acharya, director, commercial and marketing, said export volumes should remain at 22 per cent of sales.
In the medium term, the demand may catch up. The company is planning to boost its capacities to 16 mt from 14 mt by the September 30, 2015. The Dolvi unit will see its capacity rise by 1.7 mt to five mt at a cost of Rs 3,300 crore, to be funded by internal accruals and debt. Seshagiri Rao, joint managing director and group chief financial officer, said the debt-equity ratio will remain at 1.5x and the company is comfortable with that.
Profit is likely to improve, given benign input (coal and iron-ore) prices and firm rupee (some gains could be countered as firm rupee could hurt JSW’s exports). The gains, however, will also be restricted, given the subdued outlook for steel demand and realisations, say analysts.
These near-term concerns on demand and ore availability are reflected in analyst recommendations and targets. Of 15 polled by Bloomberg since the declaration of results on Tuesday, seven have buy, two hold and six sell ratings with consensus target of Rs 1,210 for the stock trading at Rs 1,204 levels.
JSW’s per tonne stand-alone Ebitda (earnings before interest, tax, depreciation and amortisation) at Rs 8,052 for March 2014 quarter was better than Rs 6,985 in the year-ago quarter. With stand-alone Ebitda increasing 47 per cent year-on-year and eight per cent sequentially to Rs 2,496 crore, the consolidated Ebitda also got a push to Rs 2,529 crore, up 46 per cent year-on-year.
The acquired 3.3 mt (million tonne) Dolvi unit is likely to see lower cost of production as pellet and coke oven plants have been commissioned. The company expects a turn in USPPM that reported an Ebitda loss of $4 million.
A positive is declining raw material prices. Global ore prices remain at a little below $100 a tonne. Coal is at $110 a tonne. The rupee depreciation provides further respite, making imported coal less expensive, as JSW Steel is mostly dependent on it.
Though the company expects more ore, with more C-grade mines in Karnataka starting production in 2014-15, this remains to be seen. JSW may have to continue sourcing some ore from outside the state. The recent iron-ore ban in Orissa is not good news. If it continues for long, it can strain the demand-supply equation in the country. The company has forecast for output growth of six per cent in 2014-15 to 12.9 mt and sales growth of five per cent to 12.5 mt. These look achievable. During 2013-14, the company had beaten its output forecast of 12 mt. Analysts say the output and sales forecasts could have been much better but for the outlook for steel demand growth and ore availability constraints have curbed these.
Also, the low demand and rupee appreciation may affect company’s exports, keeping these flat during 2014-15, say analysts. The company was able to export 3.1 mt during 2013-14. Jayant Acharya, director, commercial and marketing, said export volumes should remain at 22 per cent of sales.
In the medium term, the demand may catch up. The company is planning to boost its capacities to 16 mt from 14 mt by the September 30, 2015. The Dolvi unit will see its capacity rise by 1.7 mt to five mt at a cost of Rs 3,300 crore, to be funded by internal accruals and debt. Seshagiri Rao, joint managing director and group chief financial officer, said the debt-equity ratio will remain at 1.5x and the company is comfortable with that.