The JSW stock barely responded to the company’s financial performance for the September quarter. It had posted a net profit of Rs 691 crore as compared to a loss of Rs 669.32 crore for September 2011. Profit in 2012 was aided by a Rs 424-crore forex gain. However, the stock closed the day flat, at Rs 737, a gain of barely 0.5 per cent.
A subdued response to the results could be due to a poor comparison with the previous quarter. The company, reported to be facing issues of raw material supply on account of closure of mines on orders of the Supreme Court, has managed to produce and sell 2.17 million tonnes of steel in the September quarter as compared to sales of 2.21 mt in the previous quarter. Sales growth on a year-on-year basis remained good at 15.9 per cent; however, it was lower on a sequential basis, on account of depressed prices.
Softening of the prices of raw materials such as coking coal and iron ore resulted in an improvement in earnings before interest, tax, depreciation and amortisation (Ebitda) margins by 380 basis points (bps), to 16.8 per cent. Coal prices declined from $238-240 a tonne to $230 a tonne during the quarter. Iron ore fell from $130 a tonne to around $90, before bouncing back now to $110 levels.
| STABLE EARNINGS GROWTH IN FY14 | |||
| In Rs crore | Q2FY13 | FY13E | FY14E |
| Net sales | 9,475 | 38,064 | 41,913 |
| % change y-o-y | 16.5 | 11.5 | 10.1 |
| Ebitda | 1,531 | 6,699 | 7,438 |
| Ebitda (%) | 16.2 | 17.6 | 17.7 |
| Net profit | 691 | 1,692 | 2,092 |
| % change y-o-y | LTP | 214.6 | 23.7 |
| EPS (Rs) | - | 74.7 | 91.7 |
| PE (x) | - | 9.8 | 8.0 |
| LTP- Loss to profit E: Estimates Consolidated financials Source: CapitaLine Plus, Bloomberg | |||
However, JSW’s performance at the consolidated level took a beating on account of a poor performance by its subsidiary, JSW Ispat. The latter’s Ebitda per tonne declined from Rs 3,027 in the June quarter to Rs 1,150 in the September quarter, leading Ebitda margins at the consolidated level to fall by 316 bps.
A softening of coal prices might provide further respite. JSW’s management believes blended coal prices during the December quarter would decline further to $220 a tonne and even touch around $200 by the March quarter.
New capacities, supplies
While Ispat reported Ebitda of Rs 205 crore during the September quarter, management expects this to improve to Rs 300-350 crore, once the railway sidings and captive power plant get commissioned. The 55 Mw captive power plant at Ispat is likely to be commissioned by January, while work at the railway sidings is to be completed by March 2013. Completion of the pelletisation plant should help further.
Giriraj Daga at Nirmal Bang says the company is looking at Rs 300-350 crore of quarterly Ebitda on a sustainable basis, likely to improve by Rs 200-250 crore with the help of raw material integration projects, set for commissioning by the end of FY14.
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Despite all odds in terms of iron ore supply issues, JSW continues cruising its way. It was able to produce and sell 2.17 mt of steel during the quarter. On a yearly basis, production rose 25 per cent and sales by 15 per cent. Steel production during the first six months was 4.32 mt, up 26 per cent annually. At this rate, it might achieve its 8.5 mt production and nine mt sales target for FY13.
The company already has 1.8 mt of ore as stock. Further, there is two mt to be auctioned and even if JSW gets 60-70 per cent, it will be able to procure 1.2 mt. Of Category-A mines that got a nod for mining ore from the Supreme Court, three are already producing 1.4 mt. With the remaining mines set to start production, at least an incremental five mt ore should become available. With the hearing for category-B mines slated for this Friday, any positive development would improve visibility.
Demand is expected to pick up as construction activity does after the monsoon. So would the festive season, as demand for automobiles and consumer durables picks up.
Concerns over its subsidiaries, including the US pipe mill, has led to analysts maintaining their price target at Rs 720. Ravindra Deshpande of Elara Capital summarises by saying the demand-supply scenario in the country is likely to force less-than-full capacity utilisation. Besides, Ispat and the US pipe mill are likely to underperform, putting pressure on the consolidated picture.