Mumbai: JSW Steel is feeling the pinch of rising imports as the company made 8% less money than a year ago for every tonne of steel it sold during the quarter ended September, resulting in a sharp cut in profits and margins.
The steelmaker reported an 85.45% year-on-year (YoY) decline in net profit to ₹404 crore for the second quarter ended September of FY25. The company had posted a profit of ₹2,773 crore a year earlier. The drop can be attributed to an exceptional loss of ₹342 crore due to the surrender of one mining lease along with a higher tax rate.
The revenue from operations stood at ₹39,684 crore in Q2, down 11% YoY from ₹44,584 crore a year earlier. In the preceding June quarter, the company reported a revenue of ₹42,943 crore.
Its Ebitda for the quarter was ₹5,437 crore compared with ₹7,886 crore in the same period last year. Ebitda margin stood at 13.7%, down from 17.7% in the corresponding quarter of the previous fiscal.
However, analysts were expecting a far worse outcome. The company’s cost savings efforts, coupled with a fall in input costs, helped it beat street estimates, analysts said.
“The surge in imports kept steel prices subdued during the quarter, eating into the realizations of the company. However, considering the scenario, the earnings were better than expected,” said Parthiv Jhonsa, lead analyst for metal and mining at Anand Rathi.
“The company's efforts on cost savings across line items helped offset the impact of imports on realizations,” he said.
The company sold 6.1 million tonnes of steel during the quarter at an average price of ₹64,737 per tonne, 8% less year-on-year.
The company's consolidated crude steel production for the quarter reached 6.77 million tonnes, reflecting a 7% increase YoY and quarter-on-quarter (QoQ). Steel sales for the quarter totalled 6.13 million tonnes, which is a decrease of 3% YoY while the figure is flat QoQ. Domestic sales were particularly strong at 5.57 million tonnes, marking the highest sales in any quarter, with a 1% increase YoY and a 5% increase QoQ.
However, the company experienced a decline in exports, which fell by 43% YoY and 34% QoQ to 0.39 million tonnes. This decline was primarily due to increased Chinese exports adversely affecting global markets. Exports accounted for 7% of sales from Indian operations in Q2 FY25, down from 10% in Q1 FY25, according to the company's earnings report.
Indian steelmakers are grappling with an influx of cheap imports, primarily from China, followed by South Korea and Vietnam, which are adversely affecting local prices.
In response, the steel ministry has supported the imposition of a temporary 'safeguard duty' to mitigate the impact of Chinese imports. Additionally, an investigation has been launched into specific products imported from Vietnam to assess their effects on the domestic industry.
Analysts expect the government’s intentions of reining in cheap imports, the strong domestic demand for steel and JSW Steel’s focus on high-margin products to augur well for its bottom line. Recently, JSW Steel announced a joint venture with Japan’s JFE Steel to acquire Thyssenkurp Electrical Steel India's Nashik facility. This plant makes grain oriented electrical steel, a high-margin value-added product.
“Considering strong domestic demand, the company's focus on augmenting its capacity, integrating raw material, cost-control measures and enhancing the share of value-added products, we continue to retain a BUY rating on the stock with a target price of ₹1,080,” Anand Rathi’s Jhonsa said.
On August 3, 2024, the company announced the surrender of the Jajang Iron Ore mine located in the Keonjhar district of Odisha due to operations being economically unviable.
On October 9, the Indian Bureau of Mines approved the final mine closure plan. Following this approval, the company submitted an application for the surrender of the mining block. The company has recognised a net provision of ₹342 crore related to the underlying carrying value of the assets, including inventory and site restoration liability, which has been disclosed as an exceptional item in Q2 FY24.
The company's shares have fallen 8.17% this month, marking the largest monthly decline since April 2022, when the stock fell 24.19%
Currently, the stock is trading over 10% below its recent high of ₹1,063 per share. As of 3:00 p.m. today, the stock was down by 1.40% at ₹944.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
