Improved cash flow, divestments of the Oman steel business and Jindal Power have reduced the company’s leverage by ₹32,100 crore over the past four years
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Jindal Steel and Power Ltd’s steel production and sales for the September quarter were encouraging. Despite the monsoon, the steel sales volume surged 32% sequentially and 10% from a year ago to 2.13 million tonnes. With the revival of construction activities post-monsoon season and economic activities picking up pace, the outlook on steel sales is upbeat.
What’s more is that strong demand augurs well for steel realizations. Steel prices have been firm during the September quarter despite the seasonal impact of monsoon and volatility in the Chinese market. Steel realizations, in fact, improved marginally on a sequential basis with average domestic spot HRC (hot-rolled coil) prices improving 1% in the seasonally weak monsoon quarter, point out analysts at Antique Stock Broking Ltd.
They expect Jindal Steel’s consolidated revenue to improve 58% for the September quarter, driven by higher steel volume and realizations, though partly offset by the divestment of Jindal Power Ltd. Consolidated Ebitda is expected to jump 58% from a year earlier, driven by higher realizations and volume.
Meanwhile, iron ore prices have declined significantly during the past few months, and the benefits of lower iron ore prices may become visible from Q3 onwards. The company has been shortlisted as the preferred bidder for Kasia (Odisha) iron ore mine by the state government. This is expected to enhance its raw material security further.
That said, rising coking coal prices may pose challenges. An expected shipment in November from one of the company’s Australian coking coal mines may help reduce its coking coal dependency significantly.
Jindal Steel has seen significant debt reduction in the past year. The benefits of the completed capacity expansions were aided by a favourable steel cycle.
Improved cash flow, divestments of the Oman steel business and Jindal Power have reduced the company’s leverage by ₹32,100 crore over the past four years. As a result, the net debt-to-Ebitda ratio has dropped to 0.9 by FY21, from as high as 10 during FY17. The firm is undertaking capacity expansions through the brownfield route. The planned addition of about 6.3 million tonnes per annum (mtpa) crude steel capacity will boost its capacity to 15.9 mtpa from the current 8.6 mtpa.
According to analysts, the product mix is expected to improve as the proportion of flat steel in the overall mix will rise to 71% once capacity expansions are completed. Analysts at Kotak Institutional Equities have increased Ebitda estimates by 15% for FY22, 5% for FY23 and 10% for FY24, factoring in the present run-rate on steel margins, higher prices and volumes.
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