Top Indian Steelmaker Posts Lowest Profit in Over a Year

(Bloomberg) -- JSW Steel Ltd. posted the lowest profit in five quarters weighed by a decline in product prices and a steep drop in exports amid capacity expansions that raised concerns over rising debt.

Group net income at India’s top steelmaker fell 7.4 percent from a year earlier to 16.24 billion rupees ($227 million) in the October-December period, it said Wednesday in a stock-exchange filing. That missed the 17.3 billion-rupee average of 14 estimates compiled by Bloomberg and was the lowest profit since the quarter ended September 2017.

Key Insights

  • The Mumbai-based producer said exports during the quarter dropped sharply as both steel demand and pricing in international markets witnessed a soft patch. It expects to fall short of its 16 million ton overall sales guidance for the fiscal year ending March by two to three percent.
  • Steel prices have declined on worries of a slowdown in China, which grew at the weakest pace since 2009 last quarter. Domestic prices have fallen 11 percent since November and should decline further as they are at a three to four percent premium to imports from countries with free-trade agreements with India, Jefferies LLC said last week.
  • Analysts are also worried about the company’s debt, which has risen because of acquisitions and capacity expansion at existing facilities. The Sajjan Jindal-led producer is a frontrunner to win the assets of Bhushan Power & Steel Ltd. after an appeals court this week rejected Tata Steel Ltd.’s plea against JSW’s revised offer.
Key Numbers
  • Sales during the quarter rose 11 percent from a year earlier to 203 billion rupees.
  • Net debt stood at 460 billion rupees at the end of December. 
  • Crude steel production rose 3 percent on year in the quarter to 4.23 million tons.

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  • Steel prices will be elevated as a fatal dam burst at top iron ore producer Vale SA has led to volatility in global markets and higher prices for the raw material, JSW Steel’s Joint Managing Director Seshagiri Rao told reporters in Mumbai after the company released its earnings.
  • Exports declined by 70 percent from a year earlier due to muted demand and weak pricing, and accounted for only 10% of total sales, the company said in the statement.
  • The South Asia country had the highest growth rate in steel consumption among major steel consuming markets and this made “India a magnet to attract higher imports from steel surplus economies, especially from countries like Japan and South Korea who enjoy a Free Trade Agreement,” according to the statement.

Market Reaction

  • JSW’s shares rose 2.1 percent on Wednesday. The stock is down 9 percent this year after rising nearly 14 percent in 2018.
  • Analysts have 18 buy recommendations on the company, 7 holds and 7 sells, according to data compiled by Bloomberg.

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