Shares of Naveen Jindal-led steel and power entity, Jindal Steel and Power Ltd (JSPL), have jumped 5% in the last two trading sessions. Two factors triggered this. One, it announced a cash offer for acquiring the entire equity of Australian coal mining firm, Rocklands Richfield Ltd, through its subsidiary that holds 14.2% interest at present; two, robust results for the March quarter.
The firm’s efforts to stretch its horizons in two key areas—integrated steel manufacturing and power generation—are paying off. For the March quarter, consolidated revenue grew 21.4% to Rs 3,854.50 crore. The steel segment was the major contributor, accounting for 72% of revenue compared with 67% a year ago.
Buoyant auto sales fuelled demand for steel. For the March quarter, the volume of steel pellets sold rose by a huge 1,792% over the year-ago period, with higher steel prices also adding up to revenue.
However, sponge iron sales fell significantly due to captive consumption for producing steel. On the whole, iron and steel revenues were up 27.5% year-on-year (y-o-y) to Rs 2,998 crore for the quarter.
JSPL’s power business, which accounted for one-fourth of the March quarter consolidated revenue, also scored well. Merchant power tariffs recovered compared with the preceding quarter, although they were lower than a year ago. This was reflected in the power segment revenue, which jumped three times compared with the preceding quarter. JSPL’s units operated at near full capacity, with three-fourths of the power being linked to merchant sales.
Further, analysts reckon that the firm’s fuel security with captive coal mines gives it an edge over other power producers that have taken a beating on bourses. The attempt to buy the Australian coal mine is in this direction, besides giving JSPL an entry into the coking coal market.
The quarter’s operating profit rose 14% y-o-y, while that of the stand-alone entity, which is reflective mainly of the steel business, grew by 37%. Consolidated operating profit margin, however, dipped by about 300 basis points mainly as material costs rose. One basis point is one-hundredth of a percentage point.
But, the same improved by nearly 600 basis points from the preceding quarter, mainly on account of increased sales of what some analysts term the “hugely profitable pellets business”. JSPL’s management said steel prices would be relatively stable in the next six months, though a rise in raw material costs such as that of coking coal may lead to some price increases.
Net profit rose 4% y-o-y on a consolidated basis, while that for the stand-alone business, driven largely by steel, rose 18% y-o-y.
The firm announced capital expenditure plans of around Rs 13,000 crore during the current fiscal, with a little more than half the outlay on the power segment. JSPL’s integrated approach to growth has ensured steady cash profits through its growth phase.
Although there may not be any equity dilution, the management has hinted at listing its power subsidiary, which could see upsides for the stock.
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