India Steelmaker Beats Estimate on One-Time Tax Gain

(Bloomberg) -- JSW Steel Ltd. posted an unexpected 20% jump in quarterly profit aided by a tax writeback and higher exports, and flagged plans to cut capital expenditure for the year as domestic demand slumps.

• Group net income at India’s most valuable steelmaker climbed to 25.6 billion rupees ($361 million) in the July to September quarter, it said Wednesday in an exchange filing. That beat the 5.2 billion rupee average estimate of 13 analysts polled by Bloomberg. Sales fell 18% from a year earlier to 175.7 billion rupees.

Key Insights

• Consumption of steel has slowed in India as the economy grew at the slowest pace in six years amid a lending crisis. Consumption rose 5% from a year earlier in the first half of the year started April, data from the steel ministry shows. That compares with an expansion of 7.5% in the last fiscal year.
• Weak demand from the auto sector and a prolonged severe monsoon resulted in an 8% decline in JSW’s crude steel output during the quarter to 3.84 million tons.
  • Production in the first half fell 3% to 8.08 million tons, achieving about 48% of the targeted 16.95 million tons for this fiscal.
  • The Sajjan Jindal-owned mill said it plans to cut capital expenditure for the year ending March to 110 billion rupees from 157.08 billion rupees previously
• The mill is planning to sell more overseas as domestic consumption remains weak. JSW expects to exceed its export target of 2.2 million to 2.4 million tons for the fiscal year. Exports rose 68% from a year earlier to 1.09m tons and made for 31% of group sales during the quarter, it said.
• The Mumbai-based company, which is targeting capacity of 45 million tons by 2031, has been busy raising money in the past few months for its working capital, refinancing of debt and capital expenditure. Last week, it sold 20 billion rupees of 10-year bonds, after raising $400 million from overseas in September.

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• The company, which reported a tax gain of 18.5 billion rupees versus a 9.36 billion tax expense year ago, plans to achieve about 97% of its crude steel production target for this fiscal year, according to the statement.
• Total debt stood at 496.40 bill rupees at the end of September, Chief Financial Officer Seshagiri Rao told reporters. The mill expects the second-half to be better for the steel industry on recent government measures including the recent reduction in the corporate tax rate.
• The mill will bid for iron ore auctions in Odisha and output from its captive mines will be between 4.5 million to 5 million tons this year, Rao said.

Market Reaction

• JSW’s shares closed 1.4% higher on Wednesday, paring losses to 27% this year.
• Analysts have 14 buy recommendations on the company, 7 holds and 12 sells, according to data compiled by Bloomberg.

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Alpana Sarma, Jeanette Rodrigues

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