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Jindal Steel and Power (JSPL) reported a 49.6% decline in consolidated net profit at Rs 452 crore for the quarter ended September 30, 2013 against Rs 897 crore in the year ago period, mainly on account of soft realisations as well as higher interest and depreciation costs.
The company's finance cost more than doubled to Rs 380 crore during the quarter from Rs 159 crore a year ago. Depreciation charges during the period grew by 17% year-on-year to Rs 434 crore. The profit fall was much higher than the 17-30 per cent fall estimated by analysts (on an average net profit was expected to come at Rs 685 crore).
The company's finance cost more than doubled to Rs 380 crore during the quarter from Rs 159 crore a year ago. Depreciation charges during the period grew by 17% year-on-year to Rs 434 crore. The profit fall was much higher than the 17-30 per cent fall estimated by analysts (on an average net profit was expected to come at Rs 685 crore).
The company's net consolidated sales were up 7.4% to Rs 4,949 crore during the quarter compared to Rs 4,607 crore a year ago.
“The drop in earnings was largely due to drop of 12-15% in the price realisations and interest and depreciation burden of investments made in Angul Phase – 1 steel plant and upgradation of Raigarh steel plant,” the company said. JSPL's steel business (consolidated) recorded a year-on-year growth of 8.9% in revenues to Rs 4,135 crore, while power revenues were flat Rs 1,081 crore in the September quarter.
The power business also proved a drag on the profitability with its profit before interest and tax (at consolidated level) falling 7.3% year-on-year to Rs 523 crore. This is despite Jindal Power (a subsidiary) reported strong numbers wherein its Plant Load Factor (PLF) rising to 95.1% versus 85% a year back; its turnover was up 18% year-on-year at Rs 665 crore, while profit after tax increased 16% to Rs 301 crore. The main reason for pressure in consolidated financials was the steel business, which accounted for 63% of consolidated PBIT---its PBIT fell 23.3% year-on-year to Rs 878 crore in the September quarter.
The management attributes the sluggishness in topline to macro-economic headwinds that lowered the demand for steel and merchant power. “We had a turbulent weather in money market and the rupee’s roller coaster ride in the second quarter. Now, it will be back to sunshine days,” JSPL’s managing director, Ravi Uppal said.
In the last two years, the global steel demand has been contracting. Except for India and China, rest of the countries have recorded negative growth, Uppal adds. In the last six months, the production has increased by 2.5% while the demand has gone up by only 0.8%.
Due to rupee depreciation, the company recorded good exports. In volume terms, exports grew by 32% to 138 MT during the quarter under review compared to 104 MT in the same quarter previous year.
Importantly, the company has been able to reduce its inventory stock by 13% during the quarter. It had an inventory of 540,000 tonne in January this year, which has come down to 375,000 tonne and the target is to take it further down to 325,000 tonne by the end of 2013-14.
During the quarter, JSPL also got a breakthrough in the railways segment. It bagged orders for rails from both in domestic and international markets. It secured a rail order from DFCC for the Delhi – Kolkata corridor and an export order from Ferrotech Alloys, UK. JSPL had also launched its new brand “Jindal Panther”, marking its retail foray, during the second quarter.
On the global operations front, JSPL’s coal mining operations in Mozambique is expected to achieve its rated capacity of 3 million tonnes per annum (MTPA) by March 31, 2014. The target is to reach 10 MTPA. This will provide raw material security to the company and insulate its margins from the vagaries of international coal prices. Coal accounted for a little over 10% of its operational expenses and is its second largest cost head after iron-ore.
Uppal also added that JSPL will not make fresh investments (in India) unless it gets regulatory approvals and clearances in writing. "Today we have come to a point that we will never make any investment until we have in writing the license, land documents in hand. Our whole attitude has changed,” he said, reacting to CBI’s naming of Naveen Jindal and Kumar Mangalam Birla in FIRs related to the coal block allocation case.
But, its business as usual and we have given CBI answers in full and they are fully satisfied, Uppal adds.
