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After a strong Q4, robust volumes in April-May boost JSPL's prospects

JSPL reported its highest ever consolidated Ebitda of Rs5,287 crore in Q4FY21 against Rs4,579 crore in the December quarter. (Photo: Bloomberg)Premium
JSPL reported its highest ever consolidated Ebitda of Rs5,287 crore in Q4FY21 against Rs4,579 crore in the December quarter. (Photo: Bloomberg)

  • With strong earnings growth, the company remains well placed to reduce its debt. Consolidated net debt has come down to Rs19,332 crore after payment of Rs2,462 crore in May, with plans to reducing this to Rs15,000 crore by end of FY22

MUMBAI: Having reported stellar numbers for the March ended quarter, Jindal Steel and Power Ltd (JSPL) has continued to post strong production numbers. Output rose 31% year-on-year (yoy) to 13.71 lakh tonnes during Apr-May. Sales, however, took a hit due to lockdowns imposed by state governments to contain the second wave of the pandemic.

The company said, “Slowdown in domestic construction activities due to COVID-19 and logistical challenges faced owing to congestion at ports due to adverse weather conditions resulted in sales growth lagging production growth".

To counter this demand slowdown, steel companies have resorted to exports. JSPL has been in the business of exporting value-added steel, with overseas shipments accounting for 21% of sales volumes in April and 36% in May. Share of exports rose to 27% in fiscal fourth quarter (Q4FY21) from 21% in 3QFY21.

While a rise in volumes bodes well, steel realisations have also been firm. Domestic steel mills recently increased prices of HRC (Hot Rolled Coil) by Rs3,000/tonne (up 4%) for June deliveries. The continued rise in prices has been the driving factor behind the strong performance of steel manufacturers. JSPL reported its highest ever consolidated Ebitda of Rs5,287 crore in Q4FY21 against Rs4,579 crore in the December quarter. Revenue from operations rose 13% sequentially to Rs11,881 crore.

However, despite the positives steel stocks have been witnessing correction. What gives? Domestic demand has been weak due to lockdowns and China’s efforts to control steel prices has also dampened sentiments. The JSPL stock has corrected more than 18% from its May highs.

Nevertheless, analysts feel that Indian steel manufacturers will continue to report improvement in profitability. Chinese price correction is temporary, amid healthy demand trajectory, said analysts at IIFL Securities Ltd in their note.

Concurring, analysts at Motilal Oswal Financial Services Ltd said, “We expect the regional demand-supply balance to remain tight, which should keep spreads elevated for India’s steel mills"

Hence, the recent correction in steel stocks will be temporary, feel analysts.

JSPL, with its strong earnings growth, also remains well placed to reduce its debt. The company's consolidated net debt has come down to Rs19,332 crore after a payment of Rs2,462 crore In May. The management plans to reduce debt to Rs15,000 crore by end of FY22.

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