Volume Growth, Delivering to Drive Earnings for JSW Steel

But the company’s shares have fallen more than 9% since August due to a seasonal effect on steel prices and a jump in prices of raw materials such as iron ore and coal.

That said, steel demand is expected to pick up with the resumption in construction activity. Iron ore prices are already correcting, which should support operating performance. JSW Steel is dependent on outward supply of iron ore. Notably, NMDC Limited, the country’s largest iron ore producer, has revised the prices of its products for the second consecutive month due to the fall in international iron ore prices.

JSW Steel had reported a record operating margin for the June quarter. Standalone Ebitda (earnings before interest, tax, depreciation and amortization) per tonne was highest ₹26,291. This was supported by rising receipts despite the domestic volume being impacted by Covid. Moody’s Investor Services said in its rating release, “The conversion of outlook to positive reflects our view that JSW’s better-than-expected operating performance this fiscal will help maintain its delivering.”

As the operating performance is expected to remain supportive, the Company may see an increase in earnings on account of capacity expansion. Its existing 5 million tonnes per annum (MTPA) expansion at Dolvi is expected to be completed soon and will add to the existing 18 MTPA capacity. The company has an additional 7.5 MTPA capacity expansion by FY24. “In FY21-23, we expect above industry volume CAGR of 17%, driven by Dolvi expansion,” said analysts at Motilal Oswal Financial Services Ltd. Volume growth will improve earnings, even if we don’t see record high steel prices. A significant increase over time.

Better cash flow means that delivering can be accelerated. Moody’s said, “We expect leverage – measured by consolidated debt/Ebitda – to be less than 2.0x by March 2022, from 5.9x in March 2020, 4.5x in March 2021 and 2.9x in June 2021.” Will go.”