JSW Steel dips 4% in a firm market on disappointing Q4 results

Shares of JSW Steel dipped 4 per cent to Rs 525.75 on the BSE in Monday’s intra-day trade, in an otherwise firm market, after the company reported disappointing results in terms of profit in Q4FY22. The company's consolidated profit after tax (PAT) declined 20 per cent year on year (YoY) to Rs 3,343 crore in March quarter on higher raw material cost, lower net sales realisation, and an impairment provision. The company’s net profit a year ago stood at Rs 4,191 crore.

JSW recorded an exceptional loss of Rs 741 crore in the quarter, as a subsidiary in the US received a final arbitration order on its dispute with the lessors of a coking coal mining lease and plant lease and a consequential notice of termination of lease. The company recorded an impairment provision of Rs 710 crore.

However, JSW's revenue from operations was the highest ever, up 74 per cent YoY to Rs 46,895 crore on higher capacity utilization and additional production from Dolvi Phase II expansion. Consolidated earnings before interest, taxes, depreciation, and amortization (Ebitda) margin for the quarter stood at 19.6 per cent as compared to 31.3 per cent in Q4FY21 and 24 per cent in Q3FY22.

Higher than expected standalone operations sales volume and better than expected performance from the subsidiaries aided JSW Steel’s consolidated performance during the quarter.

Separately, JSW Steel announced the merger with erstwhile Monnet Ispat, acquired under NCLT in JV with Aion Capital earlier. This will add 0.9mt of steel capacity and lead to a 1.2 per cent dilution in equity. The 5mt expansion at Dolvi will contribute to incremental volumes, along with the integration with Bhushan Power & Steel (BPSL).

"Adjusted profit after tax below our estimate due to a sharp jump in interest and depreciation after the commissioning of the 5mt expansion at Dolvi.  Demand and consequently pricing is seasonally weak at present. The government’s policy on imposition of export duty on iron ore, pellets, and certain categories of steel will further depress domestic prices. However, we expect a sharp correction in EBITDA/t and absolute EBITDA due to a subdued ASP, and elevated costs," Motilal Oswal Financial Services said in a result update.

Steel prices have already corrected by Rs 3,500-5,000/t in the last one week across products, while iron ore prices have corrected in the Rs 750- 1,500/t range. Coking coal has reduced by 11 per cent in the last one-week to $494/t CFR India in anticipation of lower demand. The correction in coal prices will fructify in Q2, while steel and iron ore will reflect in Q1FY23, the brokerage firm said.

"We cut FY23 EBITDA estimate by 10 per cent to reflect the near term headwinds in steel margin. Consequently, we downgrade the stock to Neutral from Buy with a revised target price of Rs 600, based on 6x FY23E EV/EBITDA,” it added.

At 11:12 am, JSW Steel recovered from its intra-day low and was traded 1.5 per cent lower at Rs 540.25, as compared to 2 per cent rally in the S&P BSE Sensex. The stock had hit a 52-week low of Rs 520.10 on May 26, 2022. It touched a 52-week high of Rs 789.95 on April 19, 2022.