JSW Steel delivers strong performance in Q4

Benefits of minimum import price should reflect from June quarter; new capacities will drive volumes

JSW Steel’s consolidated performance for the quarter ended March (Q4) was driven by good realisations and volume growth. Steel prices, which were under pressure from cheap imports, had plummeted in January following which the government announced a minimum import price (MIP) in February.

As a result, JSW’s average per tonne prices in Q4 improved by Rs 2,500 to about Rs 32,500, compared to the December quarter. Better realisations, lower input costs and operating efficiencies helped the company's Ebitda (earnings before interest, taxes, depreciation and amortisation) more than double to Rs 1,825 crore, compared to Rs 892 crore in the December quarter. It was also better than Rs 1,683 crore seen in Q4 of financial year 2014-15 (FY15) and ahead of Bloomberg consensus estimate of Rs 1,502 crore. Net profit at Rs 171 crore grew 2.74 times from Rs 62 crore in the year-ago period. In the December quarter, the company reported net loss because of exceptional items. Even excluding one-offs, loss before tax stood at Rs 670 crore.

The company’s output increased five per cent to 3.2 million tonne (mt) in Q4, while sales at 3.28 mt was up seven per cent, year-on-year. Consequently, revenues at Rs 10,471 crore were better than estimates of Rs 10,360 crore.

JSW Steel’s stock gained 1.45 per cent on Wednesday to close at Rs 1,310.

With the completion of its four mt of capacity expansions (total capacity now 18 mt), JSW is aiming for a 25 per cent rise in sales to 15 mt in FY17.

With expanded capacities, it is well placed to benefit from growth in domestic demand, which analysts expect to come from the government’s infrastructure push and rural demand if monsoons are good. JSW expects domestic demand to grow about six per cent in FY17.

The company is also expected to report better realisations in the June 2016 quarter as benefits of MIP accrue. Notably, it sources raw materials like coal and iron-ore from India and abroad. With relatively benign commodity prices, profit margins should hold on. However, for long-term security, JSW plans to bid for iron-ore mines in Karnataka, auctions for which are likely to take place shortly. JSW Steel has also planned capital expenditure of about Rs 4,300 crore in FY17 towards improving operational efficiencies like conveyor belts for iron-ore transportation and water reservoir at Vijaynagar (Karnataka) plant and a 1.5 mt per annum coke oven at Dolvi (Maharashtra).

Most analysts prefer JSW Steel.