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Weakness in demand and realisations saw JSW Steel's consolidated revenue decline three per cent to Rs 13,223 crore in the December quarter, in line with the Bloomberg consensus estimates of Rs 13,201 crore. On the operating front, however, challenges persisted, specially on iron ore. The ore prices in India were 14 per cent higher, despite international prices halving in the past year.
The company imported some iron ore (30-40 per cent of its consumption) to manage the situation. Lower coal prices accrued some benefits but with a rise in other expenses, profitability got impacted. On a standalone basis, sales were down 3.6 per cent over a year to Rs 11,310 crore and Ebitda (earnings before interest, taxes, depreciation, and amortisation) per tonne was close to Rs 7,000, much lower than the Rs 7,478 a year ago.
Comparatively, the Dolvi (Maharashtra) unit's Ebitda was much better and provided some respite. Consolidated Ebitda of Rs 2,296 crore was lower than the year-ago quarter's Rs 2,409 crore, though a tad lower than the Bloomberg estimate of Rs 2,298 crore. The company posted consolidated net profit of Rs 329 crore after provisioning Rs 101.61 crore towards carrying value of its investment in the US Plate & Pipe mill. Adjusted for this the profits would have come in line with the Rs 416 crore Bloomberg estimate.
At the standalone level, JSW produced 3.17 million tonnes (mt) of saleable steel, versus 3.19 mt a year ago. With nine months crude steel production at 9.57 mt (up six per cent over a year), its production target of 12.9 mt and sales of 12.7 mt (over 70 per cent already achieved) is likely to be met.
While production and sales are in line, challenges persist on realisations, as the price trend is weak. For the week ended January 23, Motilal Oswal Securities' channel checks suggest long product (TMT Mumbai) prices are down one per cent week-on-week and HRC is down three per cent. The company's efforts on product mix are yielding some results and higher value-added products are providing some respite. The absolute decline in per-tonne realisations was about Rs 800 but due to a better value mix, the net decline was only Rs 500 a tonne. Additional initiatives could help lower pressure.
Net debt-to-equity at 1.7x and net debt-to-Ebitda at 3.86x is also ahead of the forecast comfortable levels of 1.5x and 3.5x, respectively. Lower cash flows due to weakness in demand will pose a challenge. JSW might have to reduce some capex.
Though the company sees challenges in the near term, these remain priced in, as the stock has corrected from a 52-week high of Rs 1,365 in September to Rs 977.30. In the medium term, analysts as Goutam Chakraborty at Emkay Global and those at Motilal Oswal maintain a positive stance. The consensus target price, according to analysts polled on Bloomberg in January stands at Rs 1,238.
