JSPL Q2 profit falls 12% on back of increased interest and depreciation

A 53% increase in interest and depreciation burden led to the fall in profits

Naveen Jindal-controlled Jindal Steel & Power (JSPL) has reported a 12 per cent fall in consolidated profit after tax at Rs 400 crore for the quarter ended September 30, 2014, primarily due to a 53 per cent increase in interest and depreciation burden.

Profit after tax, minority interest and share of profit/loss of associates at Rs 441.8 crore though was down only 2.3 per cent compared to the year ago quarter, and was higher than Bloomberg estimates of Rs 399 crore.

The company said that despite many unfavourable developments - de-allocation of its coal mines; reduced demand for steel due to monsoon season; major difficulties encountered in importing raw material due to heavy congestion at ports; and non-availability of rail transport out of ports - its consolidated second-quarter turnover rose six per cent over the year-ago period.
 

BATTLING ADVERSITY

• A 53 per cent increase in interest and depreciation burden led to the fall in profits
   
• The company  faced several hurdles, such as de-allocation of coal mines; reduced demand for steel due to monsoon season, among others

At consolidated level, earnings before interest, taxes, depreciation, and amortisation (Ebitda) also rose 13 per cent, compared to the second quarter of FY14. Ebitda in percentage terms swelled from 30 per cent to 32 per cent in the September quarter of FY15. The firm’s cash profit during the quarter under review expanded from Rs 907 crore in 2013-14 to Rs 1,308 crore in 2014-15 – an increase of 44 per cent.

Ravi Uppal, chief executive officer and managing director, JSPL, told Business Standard the company's net sales realisation was 4.5 per cent higher as the company performed better than the industry. JSPL’s standalone turnover, however, dropped nine per cent due to a major upgradation programme of its Raigarh plant, which was successfully completed by end-September. The Raigarh steel unit increased its capacity to 3.6 million tonnes per annum (mtpa) from October 1, compared to the previous 3 mtpa. “The enhanced capacity of our plants would be available to us in the third quarter and if there is enough demand, we should be performing better,” said Uppal.

Although the company encountered major challenges in sourcing coal for the coal gasification plant due to non-availability of its own local source, the plant achieved a capacity utilisation level of 60 per cent. The firm’s external sales of pellets witnessed a sharp drop.

“Although JSPL successfully commissioned its new pelletisation plant in March 2014, the combined plant was operated at 50 per cent capacity utilisation in view of limited iron ore availability,” the company said in a statement.

In the power business, in spite of major problems in meeting its coal requirement for Tamnar Phase II units, its second quarter sales and Ebitda grew 39 per cent to Rs 927 crore and 21 per cent to Rs 522 crore, respectively, compared to the same quarter in the previous year. The power business' Ebitda margin, however, fell sharply from 65 per cent last year to 56 per cent in the September quarter. Again, thanks to a 91 per cent surge in depreciation charges, the profit after tax declined by two per cent to Rs 295 crore. Three out of its four units have already been commissioned, while the fourth unit would be commissioned before the end of the current financial year. Two of the four 600-Mw units already have the coal linkage, while the remaining two, according to the government’s commitment, will be given fuel linkage before March 31, 2015.

The company said that though according to a recent judgment by the Supreme Court, the coal block of Tamnar Phase – I is cancelled, but it was making all possible efforts to secure the necessary coal blocks / linkage from the auction to be held shortly. Stating that the company was gearing up to take part in the auction, Uppal said JSPL had filed a review petition in the court. They have contested the CAG estimate of penalty based on A&B grades of coal of Coal India though JSPL is producing G grade coal. "We hope it will be considered reasonably. Since we do not know about the exact quantum of penalty, we have not provided for it in the balance sheet but are considering it as a contingent liability," said Uppal.

The company plans not to exceed its debt level and has postponed its capital expenditure. "We are not allowing debt limit at the group level to increase more than the current Rs 37,000 crore," said Uppal.