Jindal Steel and Power Ltd (JSPL) had better-than-expected realizations in the June quarter (Q1FY23), but its deleveraging measures did not impact much. Disinvestment of Jindal Power Ltd (JPL) helped reduce consolidated net debt 7727 crore by the end of Q1 8876 crore by the end of FY22.
ICICI Securities analysts believe debt print is disappointing despite JPL’s disinvestment due to working capital formation 2500- 3000 crores.
Analysts at ICICI Securities said in a report on July 17, “The management will do well to aggressively reduce debt over the next two quarters and meet any expectation of leverage as asset valuations accelerate from the project capex ramp up.” will stabilize.” The company aims to be net debt free by the end of FY23.
However, given the near-term challenges, it will be a major watchdog. For one, the imposition of export duty on steel with effect from May 22, coupled with weakness in global demand, is impacting steel prices. According to Steelmint, the domestic hot rolled coil price on July 13 stood at Rs 59,500 per tonne, which is about 22% lower than the average seen in April.
In Q1, JSPL’s revenue growth emerged largely non-stop due to the lag effect. Standalone revenue grew 23.7% year-on-year (YoY) to Rs 12,848.5 crore. The increase was also driven by an 8% increase in sales volume to 1.7 million tonnes.
However, this did not translate into higher profitability given the increase in the cost of input items like coking coal. In addition, higher levels of thermal coal prices mean an increase in electricity and fuel costs. Essentially, consolidated Ebitda (earnings before interest, taxes, depreciation and amortization) fell over 32% to Rs 19,028 per tonne.
Going forward, the cost of coking coal is expected to come down significantly which will drive down margins. Also, the cost of iron ore is falling which bodes well in an environment where steel prices are also declining.
Meanwhile, JSPL shares are down nearly 39% from their 52-week highs seen in April. Removal of export duty on steel will be a major trigger. The company expects to continue exporting more than 25% of the total production and focus on alloy steel as it does not attract export duty. In Q1, the share of export revenue on a standalone basis was 26%, as against 29% in Q4FY22.
“We believe that the export duty is likely to be a temporary phenomenon. Although we do not anticipate the modalities for removal, we believe that if the steel sector is to contribute to India’s foreign exchange, the export duty has to be removed as soon as coking coal is still being imported. (about 90%) and the steel industry may turn net forex negative instead of supporting the forex earnings of the economy,” analysts at Motilal Oswal Financial Services said in a report on July 16.
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