Caught between weak demand and muted spending, JSW Steel Ltd, the country’s second largest private sector steel producer, has decided to shave off ₹4,700 crore of its capital expenditure programme for the fiscal year.
Reflecting the grim operating environment, the company, presenting its September quarter report on Wednesday, also said that it will miss its production and sales guidance for FY20 by 3%.
The company reported consolidated net profit of ₹2,536 crore for Q2FY20, up 21.5% from the corresponding period of last year. However, it benefitted from an exceptional deferred tax provision write-back of ₹1,976 crore. Profit before tax was at ₹688 crore for the quarter, down 77.2% year-on-year.
JSW Steel has decided to continue with its existing minimum alternative tax (MAT) regime and reverse its deferred tax provisions over the coming quarters instead of switching to the new 22% corporate income tax structure that the government introduced this fiscal year. Two wholly-owned subsidiaries—JSW Steel Coated Products Ltd and JSW Industrial Gases Pvt. Ltd—have shifted to lower corporate tax rates this quarter. The company did not give a timeline for the switch to the new tax rate by the primary listed entity, but said that it will be done after the tax liability reversals are exhausted.
Revenue from operations for the June-September quarter was at ₹17,572 crore, down 18.5% year-on-year. Here, too, the company saw its profit boosted by a recognition of value-added tax/goods and services tax grant income of ₹466 crore pertaining to earlier years.
The capital expenditure plan for the fiscal year has been cut from ₹15,708 crore to ₹11,000 crore. The original sales guidance was 16.95 million tonnes (mt) in steel production and 16mt of sales.
“We feel that we will be able to meet 97% of the guidance," M.V.S. Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel, said at a press conference.
“Even if we perform in the second half of this fiscal as well as we did last year, we will not be able to make up for the losses incurred in the first half."
For the quarter, crude steel production stood at 3.84mt, down 8% year-on-year, while saleable steel sales fell 9% to 3.6mt in the quarter, from 3.96% in the corresponding period of last year.
The company’s Ebitda (earnings before interest, taxes, depreciation and amortization) on a per tonne basis was at ₹7,768, down from ₹12,118 in the last quarter. The Ebitda margin was 18.01%.
Net debt stood at ₹49,640 crore for the quarter, up by about ₹3,000 crore during the quarter. Stand-alone revenue stood at ₹15,520 crore, falling 21% year-on-year, primarily due to lower sales realizations and volumes. The company said realizations, linked to steel prices, fell 16% year-on-year.
JSW Steel said weaker automotive sales and consumer durables sales in recent months was a matter of concern.
“However, a modest recovery is expected on the back of festive demand and various initiatives of the government to facilitate credit availability," the company said in a statement.
To partially mitigate weak domestic demand, the company increased exports in the quarter to 1.09mt, up 68% year-on-year, which accounted for 31% of consolidated steel sales. JSW Steel exports to markets in Asia, the Middle East and South America.
The firm expects steel demand to grow 5% in FY20. “A better than normal monsoon bodes well for farm income and potential uptick in rural demand. Supportive fiscal and monetary measures are likely to spur investment and consumer demand over the medium term," the company said in a statement.