‘Easing input prices, higher demand to help JSW Steel’
The performance of the company’s smaller subsidiaries was also weak, resulting in consolidated profit before tax falling 62 per cent QoQ.
JSW’s standalone Ebitda per tonne fell 38 per cent from the preceding quarter to Rs 6,400, the lowest level in nine quarters. Standalone revenue fell 12 per cent quarter-on-quarter (QoQ) to Rs 15,520 crore, led by a 10 per cent decline in the average selling price.
The performance of the company’s smaller subsidiaries was also weak, resulting in consolidated profit before tax falling 62 per cent QoQ. However, consolidated net profit more than doubled from the first quarter to Rs 2,536 crore due to tax reversals. The situation will reverse in the second half of this financial year, Rao said. Since August, coking coal prices have fallen almost 30 per cent to $140 a tonne. Iron ore prices, too, have declined 30 per cent from their peak in the first half of the financial year. The cheaper coal and iron ore will be consumed from October. At the same time, steel prices are not expected to fall much and demand should pick up.
“We are seeing some movement in retail demand, especially from rural regions, due to a better monsoon. Some of the state projects that were on hold, too, have restarted. While inventory levels with producers have gone up, the inventory with consumers is low. Chinese production and supply are also low,” said Rao.
“We factor in improvement in steel prices and lower coking coal costs, but still see steel Ebidta/tonne in the Rs 8,000-8,500 range in the second half of FY20 and in FY21,” CLSA said in a recent note. The figure is higher than Rs 6,400 in the first half of FY20 and lower than Rs 11,700 in FY19.
Given the uncertainty, the JSW Steel management has pushed some of its capital expenditure to next year, reducing its estimated spending to Rs 11,000 crore from Rs 15,700 crore for this year.
From a 52-week peak of Rs 359.70 on November 5 last year, the JSW Steel stock has declined about 35 per cent to Rs 234.5 at the close on the BSE on Tuesday and is trading at 7.1 times FY21 estimated EV/Ebitda, which appears expensive. However, the stock may find support at the current levels as the outlook improves.