Steel prices fell ₹3,000-3,500 per tonne during the November-January period
EBITDA likely to fall 22.5% year-on-year (8.9% quarter-on-quarter) to ₹4,100 crore
Mumbai: JSW Steel is likely to report a moderation in its March-quarter spreads due to a ₹3,000-3,500/tonne decline in steel prices during the November-January period. A report from stock brokerage firm Antique said, “Although prices bottomed out at the end of January and price hikes of ₹1,000/tonne were taken in February, lower automotive sales and high inventory build-up by major domestic players in Q3 would lead to a pressure on prices. The recent INR appreciation (2% over the past month) also led to softness of domestic steel prices."
Brokgerage firm ICICI Direct said in its January-March 2019 earnings estimates for the metals and mining sector that is expected JSW Steel to report a net profit at ₹1,402.8 crore, down 51% year-on-year and 12.5% quarter-on-quarter.
Net Sales are expected to increase 1.1% year-on-year (up 3.6% quarter-on-quarter) to ₹21,048.5 crore, while earnings before interest, tax, depreciation and amortisation (EBITDA) are likely to fall 22.5% year-on-year (8.9% quarter-on-quarter) to ₹4,100 crore.
On the cost front, while coking coal prices remained largely stable at $213/tonne, price cuts taken by NMDC during the December-February period were partially reversed towards the end of February due to the impact of Vale Dam collapse, leading to a surge in global iron prices. Steel volumes are likely to sequentially recover in 4QFY19, with an increase in exports enabling the company to broadly achieve FY19 guidance of 16 million tonnes, Antique said. “Due to capacity constraints, JSW is unlikely to benefit from a healthy domestic demand in FY20 while the acquisition of Bhushan Power & Steel (BPSL) at rich valuations will remain an overhang."
JSW Steel’s proposal to acquire Bhushan Power and Steel (BPSL) is awaiting approval from the National Company Law Tribunal. BPSL currently possesses a crude steel capacity of about 1.8 million tonnes per annum (mtpa) and a finished steel capacity of 3.4 mtpa, which makes the acquisition expensive, according to Antique. “Consolidated net debt stood at ₹460 billion at the end of Q3FY19 (excluding acceptances of $1.5 billion), increasing from ₹449 billion sequentially, primarily due to an increase in working capital with increase in inventory and build-up of receivables from the government."