JSW Steel’s Q3 show affected by cost pressure

Crude steel production in the third quarter stood at 4.41 million tonnes, up 8% sequentially, while average capacity utilization stood at 94%, with some production coming from the recently introduced Dolvi Phase-II expansion.

Helped by rising production, total sales rose 6% sequentially to 4 million tonnes. However, a decline in steel receipts restricted the growth in standalone revenue from operations to just 3% sequentially. Standalone receipts were down 2% quarter-on-quarter 71,058 per tonne, according to analysts at Elara Securities (India) Pvt Ltd.

On the other hand, rising coal and electricity prices exacerbated input cost inflation, and resulted in operating costs increasing 8% sequentially on the company’s operating performance. operating profit 6,797 crore fell 22% sequentially. Ebitda per tonne also contracted 26% sequentially 16,993 as per analysts’ calculations.

Not surprisingly, standalone net profit 3,424 crore was down 36.4% sequentially.

With volatility in coal prices, cost pressures are likely to continue in Q4 as well, adding to investor concerns.

Analysts at Kotak Institutional Equities said, “We expect margins to remain under pressure in the near term with sharp rise in coking coal cost and reduction in domestic iron ore prices amid firm global iron ore prices.

The price hike will be monitored by the company to tide over the cost pressure. The curse is that steel prices are likely to be hiked by all manufacturers if high coal prices continue. However, for now, domestic and imported prices are largely at similar levels.

Analysts at Jefferies India Pvt Ltd in their note said Indian HRC steel price is down 8% from the December quarter average and is broadly in line with land imports. On the other hand, spot coking coal is up 20% above the December quarter average. Hence, he expects JSW’s standalone Ebitda per tonne to come down in the coming times.

There will be some relief from volume increase due to capacity expansion. The 5 million tonnes per annum expansion at Dolvi is already stagnant, while the 5 million tonnes per annum brownfield expansion at Vijayanagar is progressing well. The downstream expansion projects at Vijayanagar, Vasind and Tarapur are also in advanced stages of implementation.