JSPL's all-round beat in Q4 leaves investors happy; stock rises over 13%

Better steel realisations, both in India and Oman, too, helped
Shares of Jindal Steel and Power Limited (JSPL) gained more than 13 per cent on Tuesday, while other steel stocks were up between 2 and 6 per cent. The trigger for JSPL was its all-round better-that-expected results for the March quarter (Q4), which were announced on Monday evening. This was enabled by continued benefits from expanded steel capacities at Angul (leading to economies of scale) and increasing usage of cheaper coal from captive Sarda mines. And, this trend is expected to continue.

Better steel realisations, both in India and Oman, too, helped. Steel price hikes in India (prior to lockdown) and focus on value-added products (rails, specialty plates) helped improve realisations. Thus, despite loss of sales at the end of Q4 due to lockdown, which led to domestic steel volumes declining 8 per cent year-on-year to 1.33 million tonne (MT), profitability improved sharply. Ebitda per tonne increased 40 per cent sequentially and 18 per cent year-on-year to Rs 11,746. Analysts at Motilal Oswal Securities had pegged the number at Rs 10,963, primarily led by increased realisation and usage of coal inventory at Sarda mine.

Better profitability of Oman operations also surprised with Ebitda per tonne of $120, up 108 per cent sequentially and 58 per cent year-on-year. Analysts had pegged this number at $65. Cost optimisation, lower energy prices (power and gas) and higher realisation helped.

Even JSPL's power business contributed to Q4's performance. Ebitda at Rs 1.5 per kWh was up a per cent sequentially and 37 per cent year-on-year, led by lower coal costs. Realisations were flat. But, generation, which was up 28 per cent sequentially and 7 per cent lower year-on-year at 2,430 million units, also beat estimates of 2,266 million units.

Thus, consolidated Ebitda at Rs 2,220 crore was way ahead of consensus estimate of Rs 1,980 crore. Pre-tax profit came in at Rs 480 crore, as against a loss of Rs 1,692 crore last year. Net profit, adjusted for one-offs, stood at Rs 222 crore as against a loss anticipated by analysts.

Moving forward, the covid-19 led disruption will continue posing challenges for steel sector, so JSPL's guidance of about 10 per cent volume growth at consolidated level will be put to test. The power segment, where 38 per cent of capacities are tied up under fixed contracts, will also benefit from dues getting released by state electricity boards post government's package. Higher coal supplies and lower prices should help improve profitability across businesses. JSPL has also accumulated low-cost coal supplies that will last till August. And, net debt too has reduced to Rs 35,919 crore at end of Q4, from Rs 39,137 crore and may reduce further. Not surprising then, most analysts have maintained 'buy' on the stock.

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