JSPL's all-round show in Q4 leaves investors happy, analysts maintain 'buy'

Operational performance is expected to remain good, and volume growth guidance too bodes well

Shares of Jindal Steel and Power Limited (JSPL) are up more than 19 per cent in over two days, following its all-round better-that-expected results for the March quarter (Q4). This was enabled by continued benefits from expanded steel capacities at Angul (leading to economies of scale) and increasing use of cheaper coal from captive Sarda mines. And, this trend is expected to continue.

Better steel realisations, both in India and Oman, too, helped. Steel price hikes in India (prior to lockdown) and focus on value-added products (rails, specialty plates) improved realisations. Thus, despite loss of sales at the end of Q4 due to lockdown, which led to domestic steel volumes declining 8 per cent year-on-year to 1.33 million tonne (MT) in Q4, profitability improved sharply.

Ebitda per tonne increased 40 per cent sequentially and 18 per cent year-on-year to Rs 11,746, versus Rs 10,963 estimated by Motilal Oswal Securities. The gains were primarily led by increased realisation and use of coal inventory at Sarda mine.

Better profitability of Oman operations also surprised with Ebitda per tonne of $120, up 108 per cent sequentially and 58 per cent year-on-year. Analysts had pegged this number at $65. Cost optimisation, lower energy prices (power and gas) and higher realisation helped.

Even JSPL's power business contributed positively to Q4's performance. Even as realisations were flat, Ebitda at Rs 1.5 per kWh was up a per cent sequentially and 37 per cent year-on-year, due to lower cost of coal. Likewise, power generation at 2,430 million units also higher than expectations of 2,266 million units.

Thus, consolidated Ebitda at Rs 2,220 crore came way ahead of consensus estimate of Rs 1,980 crore. Pre-tax profit came in at Rs 480 crore, as against a loss of Rs 1,692 crore last year, and net profit, adjusted for one-offs, stood at Rs 222 crore as against a loss anticipated by analysts.

Moving forward, the covid-19 led disruption will continue posing challenges for steel sector, so JSPL's guidance of about 10 per cent volume growth at consolidated level will be put to test. The power segment, where 38 per cent of capacities are tied up under fixed contracts, will benefit from dues getting released by state electricity boards post government's package. Higher coal supplies and lower prices, however, should help improve profitability across businesses. JSPL has also accumulated low-cost coal supplies
that will last till August. And, net debt too has reduced to Rs 35,919 crore at end of Q4, from Rs 39,137 crore and may reduce further. Not surprising then, most analysts have maintained 'buy' on the stock.