Jindal Saw: orders alone can’t help, margins hold key

Jindal Saw: orders alone can’t help, margins hold key

The Jindal Saw Ltd stock jumped 5.7% on Thursday to 120 per share on a day the benchmark BSE Sensex rose 1%, as the company announced that it had received orders to the tune of 1,000 crore. These orders are to be executed over the next one year.

The orders also provide hope as Jindal Saw’s financial performance for the first two quarters of this fiscal has been quite lacklustre. The company manufactures large diameter pipes, seamless tubes and ductile iron pipes.

Operating profit and net profit fell in the last two quarters on a year-on-year (y-o-y) basis. However, the decline in operating profit was slower in the September quarter compared with the three months ended June.

Operating profit fell 5% in the September quarter against around 30% decline in the June quarter. That’s because revenue growth was robust in the September quarter compared with flat growth in the June quarter.

In fact, revenue is not the problem. It rose by a huge 80% y-o-y in the September quarter to 1,446 crore. Volume growth was strong. Sales of longitudinal submerged arc welding pipes during the September quarter were higher than expected.

However, total raw material costs more than doubled, adversely affecting operating profit margins in the September quarter, which were lower both on a y-o-y basis and sequentially.

Higher coking coal prices put pressure on Jindal Saw’s ductile iron pipes business. Further, the company incurred an operational loss on a large domestic order. Needless to say, as the performance in the September quarter shows, revenue growth is not enough and it would be helpful if margins improve after the recent orders.

At the profit before tax level, the September quarter performance looks comparatively better. However, forex loss spoiled the show and net profit fell 47% to about 54 crore.

The Jindal Saw stock has underperformed the Sensex since the beginning of this fiscal. Higher coking coal prices and increased domestic competition are the main concerns for the ductile iron pipes segment in the near term.

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