Investors of Jindal Steel and Power Ltd (JSPL) don’t appear cheerful despite the fact that the firm will be ramping up production this year.

The company has clocked a sales volume increase of 1.51 million tonnes (mt) in the June quarter. This amounts to 16% year-on-year growth.

Indeed, the management spoke of about 6.5mt of sales in FY20, but analysts reckon that the figure could be beaten. “We expect JSPL to produce 6.8mt of crude steel, and sell 6.45mt in FY20," said analysts at IDFC Securities Ltd in a recent report.

Primarily, volumes are getting back on track because the company’s Angul plant in Odisha is being revived in stages. A lack of oxygen had kept the plant unproductive for some time. But the good part about the revival in production at its Angul plant means that JSPL can save substantially on costs.

Analysts estimate a ballpark savings of at least 1,000 a tonne as more steel production comes on stream. This would also improve its operating performance. “We also believe that our Q1 FY20 estimates of steel sales of 1.32 mt and Ebitda per tonne (stand-alone) of 8,682 are likely to be met," noted analysts at Edelweiss Securities Ltd in a note to clients. Ebitda stands for earnings before interest, tax, depreciation and amortization.

The good thing is that the overall improvement in the steel mix and the rise in production should cushion the impact of lower steel prices, to some extent. Steel prices have been falling for much of this calendar year due to greater production in China. Steel prices in China are down 2.8% in the last three months. This has reflected in the drop in domestic steel prices this year.

Besides, steel consumption is showing signs of peaking due to a slowdown in the domestic economy. In the first quarter of FY20, steel consumption grew a slower 6.8% year-on-year, against overall 7.5% growth in FY19, noted analysts at SBI Capital Markets Ltd.

JSPL has also been trying to cut back its debt as an additional measure. The management has said that it would reduce 8,000 crore of its debt in FY20 through internal cash flows and divestment of overseas assets.

So far, though, none of this optimism has managed to impact the JSPL stock. Despite all the positive vibes, it has slumped 24.31% in the last three months, in contrast with the Nifty 500 index’s mere 1.75% fall. Looks like investors are shying away from rewarding steel stocks, fearing the steel cycle’s reversal may be some time in coming.

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