JSPL's profits decline despite higher volumes, realisations

Lower profitability in power and an overall increase in fixed cost hit consolidate profits of company

Led by higher volumes both in the steel and power business along with improvement in the sales realisation in steel, Jindal Steel and Power (JSPL) was able to grow its revenues 12 per cent to Rs 5,377 crore during the December quarter compared to Rs 4,802 crore in the corresponding quarter last year.

During the quarter, the company sold 7,64,511 tonnes of steel, which was four per cent higher compared to last year. Similarly, thanks to higher plant load factor (PLF) at 95.9 per cent (81.1 per cent in year-ago quarter) the power business under Jindal Power reported 18 per cent jump in generation to 2,116.39 million units. But, the sales realisation in the power came lower at Rs 2.86 a unit as compared to Rs 3.11 a unit in the corresponding quarter last year. However, this did not significantly impact performance considering that steel, which accounts for 75.3 per cent of the revenue, saw 2.5 per cent improvement in realisations, which helped report decent growth in revenues.

Importantly, JSPL’s efforts in the export market and initiatives towards expanding its domestic reach through better distribution has started to yield results. For instance, retail business grew a whopping 78 per cent compared to the previous quarter. By the end of December last year, the company had appointed 41 distributors and 875 dealers.

JSPL's exports during the December quarter grew nine per cent in volume terms. Its overseas businesses, too, saw improved performance. JSPL's Oman unit sold a record quantity of nearly 500,000 tonnes of HBI which was 48 per cent higher than the volume sold in Q3FY13. Oman operations' turnover in Q3FY14 at $171 million (about Rs 1,060 crore) was up 45 per cent year-on-year. And the production volume of Anthracite (ROM) in JSPL's South African mines increased 21 per cent in the third quarter.

Importantly, the company was not able to maintain the same growth momentum in net profit because of the higher interest cost and depreciation. JSPL’s consolidated profits fell by 35.7 per cent year-on-year to Rs 559 crore. This was largely to do with the 21.3 per cent jump in depreciation to Rs 460 crore and whopping 56.4 per cent jump in interest cost to Rs 430 crore.

The company attributes this to the recently commissioned Angul Steel plant. Further, JSPL's recent acquisition (majority stake) of NRE-Gujarat, Australia-based firm, which is aimed to help enhance security on raw materials, negatively impacted net profit by Rs 69 crore. As a result, reported net profit at Rs 559 crore came lower than Street estimate of Rs 600 crore. The stock ended 1.9 per cent higher on Tuesday at Rs 258.65.

Meanwhile, analysts take positive cue from the volume growth as most of them believe that at this point in time expecting higher realisations in both power and steel is difficult. However, in the coming months one could be reasonably hopeful considering that the recent steel capacity additions at Angul and 600 Mw capacity addition in the power business will have positive impact on growth.

JSPL's Angul Steel project is on track, although small delays were caused due to external interference with regards the execution of water supply works. The first phase of Angul will be fully ready before end of February. A new pelletisation plant of 4.5 mtpa will also go into commercial production by end-February. And, if the realisations improve, it will have visibly impact on JSPL’s profitability and earnings.