Jindal Steel and Power stock falls 2.3%: Power segment blip spoils Q4 show

Disappointment over the power segment’s performance, sequential rise in consolidated loss and some recovery in pallet prices saw the Jindal Steel and Power (JSPL) stock fall 2.3 per cent to Rs 255.50 after the announcement of March quarter results on Wednesday. 

However, with a better than expected show in its steel business, the company recouped most of the losses over the past two trading sessions. 

Expectation of better performance from the power segment was building in the backdrop of rising merchant (short-term) power tariffs and demand of late. However, lower coal availability played spoilsport, leading to a decline in power production of 2.3 billion units compared to a year ago. 

Thanks to rising coal costs (up 40 per cent), the segment’s operating profit plunged 31 per cent over a year to Rs 2.6 billion, despite per unit realisation improving 12 per cent over a year to Rs 4.48. 

Sentiment was also weighed down by the recent correction in pallet prices, following softness in iron ore prices, visible in the eight-nine per cent fall in Jindal Saw, Godawari Power and Ispat’s share prices on Thursday, say analysts. 

JSPL has doubled its pallet capacities to nine million tonnes per annum in the past four years. It reported consolidated loss of Rs 4.26 billion, higher than the Rs 2.7 billion in the December 2017 quarter. However, this was on the back of one-off expenses (payment of statutory demands). Adjusted for these, the net loss (after taxes) was only Rs 18 million. 

The company is reaping the benefit of timely capacity expansions and a favourable steel cycle. Domestic steel turnover (two-thirds of consolidated financials) during the March quarter grew 27 per cent over a year and operating profit surged 66 per cent. 

Analysts at Motilal Oswal Securities say strong growth in steel production adds credibility to expectations of a 30 per cent compounded annual growth in output over FY18-20, while coal shortage in the power segment is temporary. Their stock target price of Rs 349 is a 43 per cent higher from the current levels. 

Analysts at Kotak Institutional Equities, too, expect the power segment’s earnings to improve over the next two years. With steel prices elevated, moderating raw material prices will continue driving profitability, feel analysts.