Shares of JSW Steel Ltd fell 13% last week, with the stock touching new 52-week low 520.05 on 26 May on NSE. Investors have not liked the imposition of export duty on steel by the government.
But the management of JSW Steel is not upset. In its March quarter earnings call on Friday, management said it expects the government’s move to be temporary, similar to the trend seen in 2008. However, this will impact the total sales realization as the exports are huge for the company. In FY22, exports contributed 28% to the consolidated volumes.
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Besides, global steel prices have started softening since mid-April, which in turn has impacted the domestic markets. The announcement of export duty has also had an emotional impact on domestic prices. Management said that they have cut prices more than 2,000 per tonne earlier this month compared to April and a major fall is expected between now and June 1.
The special thing is that the price of coking coal is increasing continuously. The company expects the price of this raw material to rise to $125 a tonne in the June quarter. This is higher than the sequential increase of $52 per ton seen in Q4. Note that Q4 standalone EBITDA per tonne fell 31.6% year-on-year and 20.5% sequentially 13,517. This is despite record sales volume of 5.1 million tonnes in the quarter.
The good thing is that the government has removed the import duty on coking coal, which will bring some reduction in margins. With respect to iron ore, another major raw material, the company is adding capacity and aims to meet 53% of the requirement from its captive mines in FY13.
On the demand front, growth in infrastructure activity by the government augurs well. In addition, the demand from the automobile industry is also strong, which has witnessed growth in the passenger vehicle and commercial vehicle segment.
Overall, JSW Steel expects steel sales to be 24 million tonnes in FY13. Meanwhile, consolidated net debt remained at 56,650 crore by the end of March, less than 66,312 crore sequentially. But with falling profits and higher capex schemes, debt levels are not expected to come down significantly.
“While we are optimistic about JSW Steel’s volume pick-up, we are concerned about its higher capex intensity at a time of declining steel prices. We see additional volume absorption from Dolvi-II coming at a time of supply surplus, analysts at Edelweiss Securities Ltd said in a report on May 27.
IDBI Capital Markets & Securities has downgraded the stock to hold rating in view of the industry constraints of export duty and high coking coal prices.