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

Operational performance, volume growth guidance bode well

Shares of Jindal Steel and Power (JSPL) are up more than 19 per cent over the past two days,  following its better-than-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 the use of cheaper coal from captive Sarda mines. This trend is expected to continue.

Better steel realisations, both in India and Oman, helped. Steel price hikes in India (prior to the lockdown) and focus on value-added products (rails, specialty plates) improved realisations. Thus, despite loss of sales at the end of Q4 because of the lockdown, which led to domestic steel volumes declining 8 per cent year-on-year (YoY) to 1.33 million tonnes (mt) in Q4, profitability improved sharply. Ebitda per tonne increased 40 per cent sequentially and 18 per cent YoY to Rs 11,746, versus Rs 10,963 estimated by Motilal Oswal Securities. The gains were primarily led by increased realisations and use of coal inventory at the Sarda mine.

 

 

Better profitability of Oman operations were also a pleasant surprise, with Ebitda per tonne of $120, up 108 per cent sequentially, and 58 per cent YoY. Analysts had pegged this number at $65. Cost optimisation, lower energy prices (power and gas), and higher realisations helped.  JSPL’s power business also contributed positively to its Q4 performance. Even as realisations were flat, Ebitda at Rs 1.5 per kilowatt hours was up a per cent sequentially and 37 per cent YoY, because of lower cost of coal. Likewise, power generation at 2,430 million units was also higher than expectations of 2,266 million units.

Thus, consolidated Ebitda at Rs 2,220 crore came way ahead of the 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 the 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 being released by state electricity boards after the 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. Net debt, too, has reduced to Rs 35,919 crore at the end of Q4, from Rs 39,137 crore and may reduce further. Not surprising then, most analysts have maintained ‘buy’ on the stock.