JSW Steel forged strong but tested by market heat and capacity shifts

Rising coking coal costs, low steel prices, and export challenges may weigh on JSW Steel's near-term margins, though management expects price recovery ahead

Volumes and operating profit for JSW Steel grew year-on-year (Y-o-Y) in the July–September quarter (Q2) of 2025-26 (FY26), but profitability may face near-term pressures. Revenues rose 5 per cent quarter-on-quarter (Q-o-Q), driven by 10 per cent volume growth as capacities ramped up at Dolvi, Maharashtra; JSW Vijayanagar Metallics (JVML); and JSW Bhushan Power & Steel (BPSL). Net sales realisation, however, fell 4 per cent Q-o-Q due to lower steel prices.

 

Operating profit declined 6 per cent Q-o-Q to ₹7,100 crore, though it grew 31 per cent Y-o-Y. Operating profit per tonne dropped 14 per cent Q-o-Q to ₹9,693 per tonne (up 9 per cent Y-o-Y), reflecting lower realisation, partially offset by savings in coking coal and power costs and higher volumes.

 

Blast Furnace No. 3 (BF3) at Vijayanagar is shut until February 2026. Exports are also expected to slow due to the carbon border adjustment mechanism in Europe, lower steel prices, and higher coking coal costs. These factors are likely to weigh on short-term profitability.

 

Management expects steel prices to recover over the coming months. Volumes for Indian operations increased 10 per cent Q-o-Q to 7.07 million tonnes (mt). Retail sales grew 28 per cent Y-o-Y, automotive 14 per cent Y-o-Y, and construction–infrastructure 11 per cent Y-o-Y. The share of value-added products remained flat at 64 per cent Q-o-Q, though volumes of value-added products rose 10 per cent Q-o-Q to 4.31 mt.

 

Operating profit from Indian operations fell 8 per cent Q-o-Q to ₹6,900 crore due to a 5 per cent drop in realisation. Ohio (US) operations saw 5 per cent Q-o-Q volume growth in Q2FY26 but reported an operating loss of $1.08 million. The plate and pipe mill in Texas posted an operating profit of $13 million, down from $19 million in the first quarter (Q1) of FY26. Italy reported an operating profit of €5.6 million versus €1.3 million in Q1FY26.

 

Iron ore prices are expected to decline in the third quarter, while coking coal costs may rise slightly. The company operates 12 iron ore mines, supplying 30 per cent of the Q2 ore mix. Captive availability for FY26 is projected at 22–23 mt.

 

JSW Steel increased its stake in the Illawarra coking coal asset in Australia to 30 per cent. The company has also commissioned India’s first green hydrogen electrolyser (25 megawatt facility, 3,800 tonnes per year) for the direct reduced iron plant at Vijayanagar to curb greenhouse gas emissions.

 

Management noted that lower operating expenses, driven by efficiency gains and operating leverage, helped offset the decline in prices. Coking coal costs fell $6 per tonne. Net debt decreased sequentially to ₹7,900 crore, despite a ₹210 crore negative impact from foreign exchange movements. The net debt to operating profit ratio improved to 2.9x, with a target of keeping it below 3x.

 

Capital expenditure (capex) in Q2 was ₹310 crore and ₹650 crore for the first half of FY26. On September 26, 2025, the Supreme Court dismissed appeals by former promoters and operational creditors, upholding JSW Steel’s resolution plan for BPSL.

 

Total planned capex for the second half (H2) of FY26 and the next three and a half years is about ₹6,900 crore, with an expected annual capex of ₹2,000 crore, to be funded through internal accruals. The 5 mt expansion at JVML, Vijayanagar, is fully commissioned. Dolvi’s expansion, from 10 mt to 15 mt, is slated for completion in September 2027. BF3 at Vijayanagar was shut in September for capacity enhancement from 3 mt to 4.5 mt and is expected to resume operations by February 2026.

 

The board has approved a 1 mt electric arc furnace project in Karapa, Andhra Pradesh, by the end of 2028-29 (FY29), including a section mill for structural steel. A separate 1 mt section mill for structural steel was also approved for the Raigarh plant. These expansions will increase India’s capacity to 42.9 mt by FY29.

 

Analysts remain cautious on the stock, with some issuing sell recommendations, citing potential downsides and ongoing headwinds through H2FY26.