Steel segment driving turnaround at JSPL

Value-added exports, better realisations and capacity expansions bode well for the company

Had it not been for the impairment (one-off) charge of Rs 253 crore on account of loss of fixed assets in an overseas subsidiary, Jindal Steel and Power (JSPL) would have emerged profitable in the March quarter (Q4) after nine consecutive quarters of losses. Excluding this one-off item, the reported net loss of Rs 98 crore would have been in positive territory. Notably, the outlook remains positive.

JSPL continues to see improving performance led by the core steel business. As the tide turned in favour of steel producers and realisations improved in the past one year, JSPL’s concentration on exports and pallet sales have further driven its performance. While sales volume came in at 0.92 million tonnes (mt), steel exports at 210,000 tonnes grew 300 per cent and pallet sales at 1.7 mt were up 33 per cent over a year. Its Oman operations, too, helped, as Ebitda (earnings before interest, depreciation, tax and amortisation) at $32 million grew 90 per cent over a year.

Even power generation (Jindal Power) continues to face demand and realisation challenges, JSPL managed to keep it profitable. JSPL has been refraining from selling power at low rates even as capacity utilisation suffered at less than 50 per cent. Thus, its Ebit or earnings before interest and tax grew to Rs 101 crore from loss of Rs 182 crore a year ago.

Consequently, revenue grew 24 per cent over a year to Rs 6,756 crore and came higher than the Bloomberg consensus estimates of Rs 6,324 crore. Ebitda at Rs 1,552 crore (up 73 per cent) also came ahead of estimates of Rs 1,412 crore and helped narrow losses from Rs 637 crore in the year-ago quarter to Rs 98 crore. 

Meanwhile, JSPL’s capacity expansion at Angul, Odisha, is progressing well, which will take domestic capacity from the current 5.1 mt to 7.6 mt by September. Analysts at Motilal Oswal Securities had estimated a compounded annual growth rate (CAGR) of 31 per cent in volumes and 35 per cent in Ebitda over FY17-19 prior to results, indicating better days ahead.

But, there are challenges as well, especially the volatile coking coal prices. International coking coal prices had risen past $300 a tonne-level in February before cooling down recently. Thus, the impact of higher priced coal inventories may be seen in the June quarter. Likewise, the rupee appreciation may add to challenges on the export front. Ravi Uppal, managing director and group CEO, JSPL, however, says that exports were directed to niche markets and thus the company should be able to maintain the momentum.

Although small, JSPL has seen a reduction of Rs 1,200 crore in debt in FY17 to Rs 45,500 crore. With the Angul capacity expansions over, debt reduction may pick up pace.

The stock, however, was under pressure on Tuesday because of news over the coal allocation probe. But, analysts feel, corrections are buying opportunities.