JSW Steel takes a beating on higher input cost

Sajjan Jindal’s JSW Steel should soon have two factors working to mitigate its rising expenses, amid volatile coking coal and relatively higher domestic iron ore prices.

Reduction in cost due to implementation of the goods and services tax (GST) and 25 per cent of captive ore supply expected this financial year are likely to bring down expenses in the coming quarters.

“There will be reduction in cost by Rs 500-700 a tonne due to GST. We already passed on the benefit of GST to our customers in July and assuming our suppliers will reduce their cost for us, we will continue to pass this on to our clients,” Seshagiri Rao, group chief financial officer, told reporters at the June quarter earnings conference.

The Mumbai-based company took a hit on its operating profit and net profit for the June quarter. Higher raw material prices of both iron ore and coking coal ate into the margins. The company reported a consolidated net profit of Rs 624 crore, down 43 percent from the same period last year. Operating profit declined 41 per cent to Rs 894 crore.

Coking coal prices doubled to $199 a tonne, year-on-year. Iron ore prices remained higher in Karnataka, said the management. Despite lower realisations, net sales rose 24 per cent to Rs 15,977 crore, mainly due to a change in product mix, it added. Total expenses jumped 32 per cent, the cost of raw material being the highest contributor.