Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,921.50-96.9
Stock Analysis, IPO, Mutual Funds, Bonds & More

‘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.

, ET Bureau|
Oct 30, 2019, 08.17 AM IST
0Comments
Mumbai: JSW Steel shares gained more than 5 per cent over the three trading sessions since it posted a weak set of earnings numbers for the second quarter last Wednesday. The worst is behind for the company, with input prices easing and demand expected to rise, according to joint managing director Seshagiri Rao. “While steel prices fell substantially in the quarter, raw material prices corrected only with a lag, thus squeezing margins for the September quarter,” he said.

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.
steel-graph

“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.

Also Read

Price rise soon in Parliament canteen

No change in petrol, diesel prices

Onions prices continue to surge leaving customers in distress

Tea output in South hit by poor prices

Onion price may stay high till Jan

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service