PremiumJindal Steel and Power Ltd (JSPL) saw the impact of pandemic led lockdowns during the June quarter. Steel sales volumes at 1.61MT though up 3% year-on-year, were down 16% sequentially.
Poor domestic demand and sales could have further impacted volumes, but the company did well raising the proportion of exports. Share of exports increased to 34% in 1QFY22 from 27% in the previous quarter. Being an exporter of value-added products and looking at the firm international steel prices, the company was able to garner strong steel realisations. They reported better-than-expected realisations at ₹64,501 a tonne, up 63.3% year-on-year and 18% sequentially.
Analysts at Motilal Oswal Financial Services Ltd said that the reported realisations were 7% higher than their estimate of ₹60,306 a tonne. This also meant that the company’s performance beat their estimates on most parameters. MOFSL said that on a standalone basis (steel), revenue, Ebitda and net profit was 4%, 5% and 6% ahead of their estimates, respectively. Ebitda stands for earnings before interest tax depreciation and amortisation.
The company reported a strong per tonne profitability despite a sequential decline in revenues and Ebitda. It also registered its highest per tonne Ebitda of ₹28,098. The stock thereby surged more than 4% in morning trades on Wednesday.
The company’s pellet production during 1QFY22 was at 2.16MT, up 6 % sequentially. External sales of pellets also increased to 0.40 million tonnes, up 39% sequentially.
On a consolidated basis (including pallet sales, overseas mines and minerals business), the revenues though flat sequentially, were up 42% year-on-year. Ebitda more than doubled over the year-ago period and net profit was aided by much lower interest cost with regular deleveraging.
The company plans to complete the divestment of Jindal Power Ltd in the next 12 months. The operations having been reclassified as discontinued operations with ongoing divestment. Thus, consolidated numbers are excluding JPL performance.
Consolidated net debt (excluding JPL) declined by 4% sequentially to ₹15,227 crore, which implies a net debt/EBITDA of 0.96 times compared to 1.53 times in 4QFY21.
The company said that conclusion of JPL divestment (now accounted as an asset held for sale) will lead to a further decline in net debt, taking JSPL a step closer to its vision of becoming a net debt free company.
Moving forward, the steel demand is expected to rebound with the opening up of the economy. The realisations are also expected to remain firm. Rising coking coal prices and the company exhausting its Sarda mines iron inventory may lead to the normalisation of margins.
Nevertheless, analysts at MOFSL have raised FY22 Ebitda estimates by 13% on expectations of higher steel prices in the fiscal. Strong cash flows, coupled with cash proceeds of ₹3,010 crore from the JPL divestment, should lead to a fall in net debt to ₹3,450 crore by FY23, implying 0.3x FY23 Ebitda, said MOFSL.
Analysts at Elara Securities India Pvt Ltd said phase-wise completion of capacity expansion projects should support long-term volume growth.
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