Triple-whammy for JSPL

Performance impacted by soft steel, merchant power realisations and high input costs

Even as uncertainty over allocated coal blocks were proving to be an overhang for Jindal Steel and Power Limited (JSPL), its performance for the quarter ending June has disappointed the Street further. The stock fell 11.1 per cent to close at Rs 68.45 post the results on Thursday. On the one hand, JSPL’s steel segment (about 74 per cent of gross revenues) continues to feel the heat of soft realisations. On the other hand, while the lack of captive coal is impacting plant load factors (PLF), weak merchant power prices are hurting profitability of the power segment. Thus, JSPL was not able to generate adequate operating profits, leading to a net loss of Rs 355 crore against a profit of Rs 402 crore in the year-ago quarter.

Looking at the weak demand environment and imports of low-cost steel from China and countries under free trade agreements such as Japan and Korea, realisations are under pressure for the industry. JSPL’s steel realisations are estimated to have declined by about 14 per cent. Thus, in spite of volumes rising 39 per cent year-on-year to 1.1 million tonnes, steel segment sales at Rs 3,724 crore declined 2.3 per cent in the quarter.

Further, owing to higher costs of raw materials, the segment’s Ebit (earnings before interest, tax) at Rs 221 crore was sharply lower than Rs 706 crore in Q1 of FY15.

Power segment sales volume at 1,792 million Kw hours, too, were up seven per cent, leading to a 2.7 per cent increase in revenue to Rs 1,263 crore. The lower growth in revenue was due to soft merchant power prices, which, along with high coal costs, dented profitability. Thus, the segment’s Ebit at Rs 399 crore declined 38 per cent year-on-year.

As a result, overall earnings before interest, taxes, depreciation, and amortisation fell from Rs 1,192 crore to Rs 710 crore; margin declined from 55 per cent to 28 per cent, which along with higher depreciation (Rs 747 crore, up 12 per cent) and finance costs (Rs 852 crore, up 59 per cent) led to a net loss. While the newly commissioned 2x600 Mw operated at 34 per cent PLF, another 2x600 Mw is awaiting commissioning. The company is contemplating on reducing costs to improve the steel segment’s profitability. In the power segment, it expects to push more supplies to South Indian states by utilising its agreements to fullest besides signing new power purchase agreements. Nevertheless, the street will be watching on how JSPL manages its coal requirements as well as the court's decision on allocated mine cancellations and new mines coming up for auction, which will act as triggers for the stock.