Mumbai: JSW Steel, India’s third-biggest steelmaker, reported a 10% fall in quarterly net profit, beating expectations, and said it expected to operate its main plant at 80% capacity in 2012/13 as iron ore supplies take time to stabilise.
Production at JSW Steel’s 10 million tonnes per year Vijayanagar plant in Karnataka has been affected since August after the Supreme Court put an interim ban on mining in the southern state, citing illegalities in some mines.
While ore supplies have been partially restored through auctions, India’s top court last week ordered the federal police agency to probe JSW Steel’s alleged involvement in illegal iron ore mining in the state.
An undated handout picture of JSW Steel Ltd.’s Jindal Vijaynagar works, in Bellary. Bloomberg.
“In some ways, we are a victim of circumstances, since we do not have mines of our own and are forced to buy all our ore requirement,” chairman Sajjan Jindal told reporters. “It will be a few more months before the iron ore issues are fully resolved”.
JSW Steel, in which Japanese steelmaker JFE Holdings owns 15% stake, reported a net profit of Rs752 crore ($140 million) for the January-March period - its fourth quarter - and net sales up 35% to Rs9510 crore.
The company was expected to report quarterly net profit of Rs707 crore on sales of Rs8740 crore, according to a Reuters poll.
Subsidiary JSW Ispat, in which JSW Steel acquired a controlling stake in 2010, last week posted a quarterly loss of Rs140 crore.
“The realisations are less than expected, and the fall in input costs should have been more. Their performance in coming quarters will mainly depend on the iron ore supplies,” said Kamlesh Bagmar, analyst at Mumbai brokerage Prabhudas Lilladher.
JSW expected to sell 9 million tonnes of steel in its 2012/13 year, compared with 7.8 million tonnes in 2011/12. Production was expected to rise to 8.5 million tonnes this fiscal year compared, from 7.5 million tonnes.
The company will not raise capacity at the Vijaynagar plant beyond the 12 million tonnes currently under way, Jindal said. JSW expects to spend Rs6000 crore expanding capacity in its current year.
JSW sees margins improving in coming quarters as iron ore and coking coal prices were expected to ease, even as steel demand remains robust in Asia’s third-largest economy.
The company said sales volume in its fourth quarter rose a third to 2.31 million tonnes, while crude steel production rose 26%.
“We expect steel demand (growth) in India will be around 7.5%, tracking the expected GDP growth of 7.6% in 2012/13,” the company said.
Steel demand in India has been growing at near double-digits over the past few years, pushing local firms to boost capacity and attracting global steelmakers including ArcelorMittal and POSCO to set up base in the country.
Shares in JSW Steel, valued at $2.6 billion, closed down 1.2% in a Mumbai market that fell 0.5%. The stock has risen 23% in 2012, compared to a 5% rise in the benchmark stock index.