A crane unloads from a mini-bulk carrier ship moored at the JSW Steel Ltd. jetty, operated by JSW Dharamtar Port, near JSW Steel’s manufacturing facility in Dolvi, Maharashtra, India (Photographer: Dhiraj Singh/Bloomberg)  

JSW Steel’s Q4 Profit More Than Triples; Lines Up Rs 26,800-Crore Capex Over Three Years

JSW Steel Ltd.’s profit rose three-fold in January-March as India’s largest steelmaker recorded its highest ever sales volume and production in a quarter.

Net profit increased 242 percent in the fourth quarter to Rs 1,014.3 crore over the year-ago period, according to its stock exchange filing. Revenue increased 57 percent to Rs 16,287 crore. Both beat estimates of analysts tracked by Bloomberg.

Domestic steel demand remained weak in the fourth quarter following a cash crunch during demonetisation and a surge in raw material prices. To offset the slowdown, the company focused on exports, which grew 153 percent year-on-year, said Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel, in an interview to BloombergQuint. The company cut production of low-margin long products and exported high-margin coated products, he said.

This helped JSW Steel protect its margins even as its per-tonne operating income came down to Rs 7,595 in the fourth quarter from Rs 7,711 in the previous three months, he said.

The Sajjan Jindal-led firm, which turned India's largest steel producer with a record output this year, is betting on steel demand to grow with the government's emphasis on infrastructure. The recently approved National Steel Policy calls for using local steel in government projects.

Available capacity would get fully exhausted in two to three years, given the thrust on infrastructure and affordable housing, said Rao. The company has a 14-15 percent market share. When the country has a 300 million tonne capacity, JSW Steel expects to maintain that share and hopes to ramp up production from its additional capacity to almost 40 million tonne over the next decade, he said.

JSW Steel’s Q4 Profit More Than Triples; Lines Up Rs 26,800-Crore Capex Over Three Years

Rs 26,800 Crore Capex Over Three Years

The Mumbai-based company has lined up capital expenditure of Rs 26,800 crore over the next three years, Rao said.

The investment would include expansion of capacity at Dolvi plant in Maharashtra from 5 million tonne to 10 million tonne per annum. This alone would be a Rs 15,000-crore project, which is expected to be completed by March 2020. Other projects include upgradation of Vijayanagar plant in Karnataka and enhancement at downstream facilities of JSW Steel Coated Products Company, he said.

Funding for these projects would be a mix of debt and cash accruals, Rao said. “Rs 15,000 crore (Rs 5,000 crore each in every year) will be raised by debt while the balance would be out of our cash generation spread over three years,” he said.

JSW Steel’s shares closed 2.5 percent higher compared to the BSE Sensex which gained 0.25 percent in trade on Wednesday. The stock has gained almost 28 percent year-to-date, in line with its peers Tata Steel Ltd. and Steel Authority of India Ltd.

Tapping Growth

Crude steel production during the January-March quarter increased 28 percent to 4.1 million tonnes, while sales volume went up 20 percent over last year to 3.96 million.

The steelmaker estimates its crude steel production to grow 4.4 percent in financial year 2017-18 to 16.5 million tonnes. It forecast a sales volume increase of 4.9 percent in the current financial year, according to its media statement.

Demand should grow at least 5 percent, Rao said. The company is focused on capitalising on the infrastructure and housing sector while continuing to cater to the automobile and steel appliances sector.

We expect a 7 percent growth in auto sector in FY18. Also, in this year we expect the green shoots and investments to come into infrastructure. 
Seshagiri Rao, Joint Managing Director And Group CFO, JSW Steel

The company also expects more than 2 million tonnes of incremental steel demand from oil and gas and water pipelines. Rural infrastructure would also help stimulate the demand for steel, Rao said.