JSPL: A power-packed performance

Strong steel show, rebound in power segment buoy overall numbers

Jindal Steel and Power (JSPL) has reported a sharp improvement in its operating performance for the June quarter (Q1), driven by the steel and power businesses, amid the goods and services tax- (GST) led destocking that restricted steel volumes. A turnaround in the power business, led by a robust seasonal merchant demand, drove the overall growth and profitability.

The standalone steel business (domestic operations, excluding Oman) witnessed a four per cent year-on-year (y-o-y) improvement in sales volume at 0.81 million tonnes (mt), a little lower than analysts’ expectations of 0.85 mt. However, an increasing share of value-added products and better realisations helped earnings before interest, tax, depreciation and amortisation (Ebitda) rise 14 per cent y-o-y to Rs 750 crore, translating to 20 per cent margins. Sequentially, the decline in steel and pellet prices was a drag.

The turnaround in the power business came on the back of a 47 per cent y-o-y rise in power generation at 3,186 million units, led by the plant load factor or capacity utilisation increasing to 43 per cent, from 36 per cent a year ago. With better realisations, the revenue surged 62 per cent y-o-y. Efforts on operating costs curtailed the fuel and other expenses by 20 per cent, enabling Ebitda to grow an impressive 157 per cent, and cash profit coming in at Rs 368 crore. 

Source: Motilal Oswal Securities

These pushed up consolidated revenue at Rs 6,127 crore (up 20 per cent y-o-y) and Ebitda at Rs 1,353 crore (up 33 per cent), ahead of the Bloomberg’s estimate of Rs 6,000 crore and Rs 1,336 crore, respectively. Margins at 22 per cent were higher than 20 per cent a year ago. The improved operating performance helped to reduce net loss to Rs 421 crore (estimates pegged loss at Rs 449 crore), from Rs 1,240 crore in the June 2016 quarter. JSPL reported a cash profit of Rs 453 crore, against a cash loss of Rs 463 crore a year ago. The outlook for steel demand and prices remains good.

Ravi Uppal, executive director and chief executive officer of JSPL, said demand for value-grade products remains strong from Belgium, Spain and Germany, among others, and better international prices bode well.

The newly-commissioned 4mt blast furnace is expected to double steel production by the end of FY18. JSPL has also secured 

0.511 mt coal linkages (75 per cent of requirement) for its captive power plants, which should keep costs under check, and is eyeing more linkages in fresh auctions. While the merchant power business may see demand getting impacted due to monsoons, management expects an improvement after that. JSPL is also working on refinancing borrowings to reduce interest costs. 

Three of the four analysts polled by Bloomberg have a ‘buy’ on the stock (average target price Rs 163). Analysts at Motilal Oswal say JSPL is likely to benefit from an improvement in underlying drivers (higher coking coal prices, domestic coal supply, pellet export prices, and domestic long product prices) of earnings growth. 

The JSPL stock fell three per cent on Wednesday to Rs 136, led by selling in broader indices.