JSW Steel beats Q1 estimates, reports 44.3% fall in profit at Rs626 crore
Mumbai: JSW Steel Ltd. on Monday reported a 44.3% drop in consolidated net profit to Rs626 crore in the quarter ended June from the year-ago period, with the Ebitda (earnings before interest, taxes, depreciation and amortization) margin shrinking by over 10 percentage points 17.9%. Despite such a huge drop, the company’s bottom line still beat Bloomberg consensus analyst estimates.
The company’s management said the main reason for such a big drop in Ebitda margin was the fact that while domestic steel prices corrected in sync with the rest of the globe, domestic ore prices didn’t. The company also suffered due to high fuel cost despite coking coal prices trending down during the quarter since it had high cost inventory from the preceding quarter.
Seshagiri Rao, JSW Steel’s joint managing director and CFO said that despite such headwinds, the company managed to ensure flat blended realizations by increasing the sales of coated products and other high-value products. “We have done quite well in changing our product mix to address the issues that had prevailed during the quarter,” Rao said.
The company’s revenue, on the other hand, increased by 24% to Rs15,977 crore due to a 5% rise in sales volume to 3.51 million tonnes. Production, on the other hand, grew by just 1% to 3.91 million tonnes. “The production could have been higher but we could not operate our unit in Salem to the full extent due to water shortage,”
On competition from Chinese manufacturers, Rao said that despite the levy of anti-dumping duties, the landed cost of Chinese steel is 7-10% lower than domestic steel and that 0.5-0.6 million tonnes of steel is being imported into the country every month. Rao said that Chinese exporters are circumventing the Indian government’s regulations by bundling low value products with high value ones. “On a weighted average basis, the bundle’s price ends being higher than the reference price, which ensures they don’t have to pay any anti-dumping duty,” Rao said, adding that the company intends to bring such circumvention to the notice of the government.
With reference to the company’s balance sheet, Rao said that its net debt grew by Rs1,774 crore during the quarter to Rs43,323 crore, thereby pushing the net debt to equity higher to 1.97. He attributed the rise in debt to working capital requirements. Separately, JSW Steel’s board approved the raising of long term funds via the issuance of secured/unsecured, redeemable, non-convertible debentures (NCDs) of up to Rs5,000, mostly to replace short term loans and meet long term working capital requirements. Rao, however, said the company is still confident of ending financial year 2017-18 with a net debt to equity ratio of 1.75.
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