 "Standout quarter for JSW Steel")
JSW Steel reported a strong June quarter performance, on the back of record volumes and higher prices, helping post its highest ever operating and net profits. Reflected in the stock price, which hit a multi-year high of Rs 1,762 before closing at Rs 1,738.30 on the bourses.
Crude steel production at 3.87 million tonnes grew 14 per cent over a year Sales at 3.34 mt grew eight per cent over the same period last year. While the company also benefited from capacity expansions, as blast furnaces at the Bellary and Dolvi plants were ramped up, it also replenished the finished goods stock in the current quarter, to bring inventories to normal levels. The company had liquidated inventory to meet customer requirements in the March quarter, despite a planned shutdown.
Though steel demand growth in the country has remained flattish over the same quarter last year, the company re-focused on exports and this grew 39 per cent. Exports were 19 per cent of sales volume.
Enforcement of minimum import prices (MIPs) by the government in February had led to a rise in market prices and the full impact was seen in the June quarter. Consolidated sales at Rs 12,720 crore (up 2.2 per cent over a year) were 3.3 per cent ahead of the consensus Bloomberg estimate of Rs 12,311 crore.
Aiding the volume performance was lower raw material cost . Since JSW uses imported coal and external iron ore, prices for which have been on falling, it added to the operating performance. Raw material cost declined 6.2 per cent over a year; power & fuel costs remained flat, despite a 14 per cent increase in production. Thus, earnings before interest, taxes, depreciation and amortisation (Ebitda) at Rs 3,269 crore was up 89 per cent over a year and much ahead of the Bloomberg consensus estimate of Rs 2,589 crore. This translated to Ebitda per tonne of Rs 9,787 versus Rs 5,560 in the year-ago quarter. The net profit at Rs 1,109 crore, against a Bloomberg expectation of Rs 742 crore, was much higher than the Rs 21.9 crore in the year-ago quarter and Rs 239.5 crore in the March quarter.
The company is on track to meeting its production and sales forecast for the year, says the management. JSW plans 15.75 mt production and 15 mt sales, a rise of 25 and 24 per cent, respectively, over FY16. The continuing ramp-up at Dolvi will support this growth in the coming quarters, it says.Crude steel production at 3.87 million tonnes grew 14 per cent over a year Sales at 3.34 mt grew eight per cent over the same period last year. While the company also benefited from capacity expansions, as blast furnaces at the Bellary and Dolvi plants were ramped up, it also replenished the finished goods stock in the current quarter, to bring inventories to normal levels. The company had liquidated inventory to meet customer requirements in the March quarter, despite a planned shutdown.
Though steel demand growth in the country has remained flattish over the same quarter last year, the company re-focused on exports and this grew 39 per cent. Exports were 19 per cent of sales volume.
Enforcement of minimum import prices (MIPs) by the government in February had led to a rise in market prices and the full impact was seen in the June quarter. Consolidated sales at Rs 12,720 crore (up 2.2 per cent over a year) were 3.3 per cent ahead of the consensus Bloomberg estimate of Rs 12,311 crore.
Aiding the volume performance was lower raw material cost . Since JSW uses imported coal and external iron ore, prices for which have been on falling, it added to the operating performance. Raw material cost declined 6.2 per cent over a year; power & fuel costs remained flat, despite a 14 per cent increase in production. Thus, earnings before interest, taxes, depreciation and amortisation (Ebitda) at Rs 3,269 crore was up 89 per cent over a year and much ahead of the Bloomberg consensus estimate of Rs 2,589 crore. This translated to Ebitda per tonne of Rs 9,787 versus Rs 5,560 in the year-ago quarter. The net profit at Rs 1,109 crore, against a Bloomberg expectation of Rs 742 crore, was much higher than the Rs 21.9 crore in the year-ago quarter and Rs 239.5 crore in the March quarter.
Given the strong execution and ability to deliver, JSW remains a key analyst pick over other Indian steel majors. Investors, however, need to watch for some headwinds in the near term. Global steel prices, rising for six months, have begun correcting and pressure on Indian prices is likely. The September quarter is traditionally a weaker one, with less of construction activity and in demand for long products. Further, MIPs are to be reviewed; an extension or other safeguard will be necessary for supporting domestic prices, given the threat from cheaper import.
Further the cost of basic raw material such as iron ore and coal are increasing on a sequential basis. All this might lead to some near-term headwinds and the September quarter's performance might be softer.
Nevertheless, steel demand in the country during FY17 is expected to grow by six per cent (it was flat during the June quarter). This will benefit JSW Steel, as growth in construction, automobiles and mining will help during the second half. Thus, any correction in the share price will be an opportunity for investors.