On a consolidated basis, Jindal Steel & Power (JSPL)'s net profit (from continued operations) jumped 188.08% to Rs 2,583.90 crore on a 67.04% surge in total revenue from operations to Rs 13,611.71 crore in Q2 September 2021 over Q2 September 2020.
Despite sluggish domestic demand due to ongoing monsoons in the country, Jindal Steel & Power (JSPL) reported robust growth in sales and production in Q2 FY22. JSPL's sales volume surged 32% Q-o-Q (quarter-on-quarter) and 10% Y-o-Y (year-on-year) to hit a record of 2.13 million tonnes (MT) during the quarter. The second quarter also marked the first time JSPL steel sales crossed 2 million tonnes quarterly volumes. The company continued to benefit from buoyant export markets as share of exports in overall volumes increased to more than 40% in Q2 FY22 compared to 34% in Q1 FY22 and 38% in Q2 FY21. Exports have become key channel of sales for the company, especially in times of subdued domestic demand.
Meanwhile, JSPL was declared as the preferred bidder for Kasia Iron Ore Mine in Odisha. Kasia Mine has a large geological resource of 278 million tonnes of iron ore and it consists of an average Fe grade of approx. 62.5%. Kasia is an operational mine having an Environmental Clearance (EC) of 7.5 MTPA (million tonnes per annum). The mine is 17 km away from JSPL's Barbil pellet plant. Iron ore from Kasia is stated to significantly boost JSPL's raw material security; especially as the company makes steady progress on its plans to raise its pellet capacity to 21 MTPA from 9 MTPA now by FY24 and steel capacity to 16 MTPA from 9.6 MTPA by FY25. The company is also working towards setting up a slurry pipeline between Barbil and Angul (c. 200 km), which will not only help reduce logistics costs but also lower carbon and dust emissions associated with raw material transport through road, the firm stated in its press release.
Higher volumes coupled with continued upward momentum in steel prices in Q2 FY22 resulted in standalone net revenues rising to Rs 13,261 crore. This was, however, partially offset by lower pellet sales (due to rising internal consumption) and declining pellet realizations. Better steel volumes and realizations resulted in standalone EBITDA at Rs 4,519 crore for the reported quarter.
However, the strong performance by all businesses including overseas mines, contributed in JSPL reporting a record consolidated gross revenues of Rs 14,902 crore and consolidated EBITDA of Rs 4,594 crore. Higher operating profit and lower finance cost has led to consolidated PAT rising to Rs 2,584 crore, rising 3% Q-o-Q.
The Q2 FY22 phase continued to witness sharp rise in input costs, impact of which was compounded by exhaustion of low cost iron ore inventory in Q1 FY22. While coking coal prices had risen sharply during the quarter, the impact was significantly lower given the company had already booked material at lower prices for the quarter. The upward trend in coking coal (Premium hard coking coal) prices have continued in October 2021, rising beyond $400 /t for the first time ever. Higher coking coal prices is likely to impact margins going forward. However, incremental supply from WCL's Russel Vale mine in Australia and declining iron ore prices is expected to help contain margin compression from rising coking coal prices.
On the financial front, strong operational cash flows, improving working capital, declining finance cost and lower capex have all contributed towards continuous deleveraging in Q2 FY22. Consolidated net debt has declined further to Rs 11,164 crore in Q2 FY22 from Rs 15,227 crore in June 2021. For the reported quarter, finance costs have declined by 31% Y-o-Y in Q2 FY22. JSPL's focus on strengthening its balance sheet has resulted in its net debt declining by c. Rs 35,350 crore from a peak of c. Rs 46,500 crore in FY16. Conclusion of Jindal Power (JPL) divestment (accounted as asset held for sale) will result in net debt to decline further by Rs 3,015 crore, taking JSPL a step closer to its vision of becoming a net debt free company by FY23. The divestment received strong backing from the shareholders' approving the transaction in the EGM held on 3 September 2021. The company is currently in the process of getting relevant approvals from JSPL as well as JPL lenders and expect the divestment to conclude in FY22 itself.
For its outlook, Jindal Steel & Power (JSPL), highlighted: "India has recently hit the 100-crore vaccination milestone with more than 75% of the eligible population having taken the first dose. Steady vaccination ramp-up and easing of COVID-19 related restrictions are likely to help in broadening the recovery, and external demand conditions remain supportive. After remaining subdued in H1 FY22, construction and infrastructure activities are expected to recover strongly in H2 FY22 as seasonally strong demand period sets in. This bodes well for JSPL with two thirds of its product portfolio catering largely to India's Construction & Infrastructure sector. Taking a cue from falling seaborne iron ore prices, the domestic iron ore prices have also been declining for the past three months. This could aid margins for the company going forward with three fourth of this key raw material sourced from third parties at this juncture. Start of operations from Kasia mine by end of Q3 FY22 along with the operating Tensa mine is expected to provide more than 70% iron ore security for the company's steel operations. The domestic steel industry however continues to grapple with the sharp rise in the coking coal prices. Premium Hard Coking coal has risen by 180% so far in FY22 and currently trading close to USD400/t levels. However, resumption of our Russel Vale mine in Australia will provide some relief from rising coking coal costs, with first shipment expected in November 21."
Shares of Jindal Steel & Power (JSPL) skid 2.91% to Rs 418.50 on BSE. JSPL is an industrial powerhouse with a dominant presence in steel, power, mining and infrastructure sectors.
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