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Jindal Steel and Power Ltd (JSPL) reported a strong and better than expected performance in the September ended quarter (Q2). The company’s sales volume surged 32% sequentially and 10% year-on-year (YoY) to hit a record of 2.13 million tonnes during the quarter. 

Domestic demand is typically soft in the monsoon-impacted September quarter. Nevertheless, the company compensated for this with higher exports. Share of exports in overall volumes increased to more than 40% in Q2 FY22 compared compared to 38% in Q2 FY21. Exports have become a key channel of sales and the management expects the momentum to continue.

The company also benefitted from the rise in realisations. Net blended steel realisations jumped 53% YoY, as per analysts’ calculations. Declining pellet prices though meant that realisations were 4% lower sequentially.

Standalone revenues were at 13,261 crore, up 69% YoY and 28% sequentially. Rising input costs such as those of coking coal and iron ore meant that operating performance softened on a sequential basis. Standalone Ebitda at 4,512 crore was flat sequentially though up 85.6% year-on-year. Ebitda per tonne came at 21,216, down 25% sequentially due to an increase in iron ore and coking coal cost with low-cost Sarda mine inventory being exhausted in Q1 FY22. Ebitda per tonne, however, was 68% higher sequentially. 

Consolidated Ebitda was helped by an improved performance from overseas coal and at 4,594 crore was up 70% year-on-year and 1.4% sequentially.

Rising steel realisations in the third quarter, however, may compensate for the cost of inflation. 

Meanwhile, the company has been declared the preferred bidder for Kasia iron ore mine in Odisha which has a large reserve of 278 million tonnes of iron ore and the start of supplies will benefit the company.

“Steel profits would be aided by the ramp-up of volumes at Angul and the impact of higher coking coal costs would be partly offset by improved profits from overseas coal mines in Australia, Mozambique and South Africa," said analysts at Antique Stock Broking Ltd.

Steel demand in the country remains robust. Besides, the company continues to expand its capacities. JSPL recently approval to operate an additional 1MTPA for the Angul Blast furnace (CTO of 4.25mtpa from 3.2mtpa currently) raising the company’s capacity to 9.6 mtpa (million tonne per annum).

Strong operational cash flows, improving working capital, declining finance cost, and lower capex have all contributed towards continuous deleveraging in Q2 FY22.

Conclusion of the divestment of Jindal Power Ltd, accounted as asset held for sale, will result in net debt declining by 3,000 crore, taking JSPL a step closer to its vision of becoming a net debt-free company by FY23, said analysts at JM Financial Institutional Securities Ltd. Divestment of non-core businesses, de-leveraging of the balance sheet (net debt/EBITDA to be at sub 1x FY23) and growth capex will drive earnings trajectory going forward, they added.

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