JSW Steel Q1 Results: First Loss In Six Years As Lockdown Stalled Operations
Signage for JSW Steel Ltd. is seen on the exterior of the company’s manufacturing facility in Dolvi, Maharashtra, India. (Photographer: Dhiraj Singh/Bloomberg)

JSW Steel Q1 Results: First Loss In Six Years As Lockdown Stalled Operations

JSW Steel Ltd. has reported a loss for the first time in more than six years after the lockdown to contain the coronavirus pandemic stalled operations during most of the first quarter before the nation started to ease curbs.

The steelmaker reported a net loss of Rs 561 crore in the April-June period against a net profit of Rs 1,028 crore a year ago, according to an exchange filing. That's the first loss since the second quarter of financial year ended March 31, 2014. Analysts tracked by Bloomberg had pegged JSW Steel's loss at Rs 709 crore during the three months ended June.

  • Revenue declined 41% over the year earlier to Rs 11,782 crore—lower than the Rs 12,192-crore consensus estimate.
  • Operating profit, or earnings before interest, tax, depreciation and amortisation, fell 64% to Rs 1,341 crore.
  • Ebitda margin contracted to 11.4% from 18.7% a year ago.

The June quarter was marked by formidable challenges of disrupted supply chains, unparalled drop in demand and activity levels in the domestic markets, uncertainty in logistics movement and liquidity constraints, JSW Steel said in the statement. Losses at overseas subsidiaries, lower realisation from exports, along with weak domestic demand, weighed on earnings, it said.

India’s steel mills took a hit after the government imposed restrictions on movement of people since the last week of March till most of May as it tried to contain the Covid-19 pandemic. That deepened the slump in demand for the alloy as new construction and purchases of cars and houses were delayed, leading to a fall in prices.

JSW Steel's output fell 30% year-on-year to 2.96 million tonnes in the three months ended June, it had said in a separate filing earlier this month. In comparison, SAIL's production fell 41%, while smaller peer Jindal Steel & Power Ltd.'s rose 9.7%.

Overseas Subsidiaries Disappoint

  • JSW Steel Coated Products registered a production volume of 0.3 million tonnes and sales volume of 0.33 million tonnes. Its revenue stood at Rs 2,049 crore, while it reported a net loss of Rs 31 crore during the quarter.
  • U.S. Plate and Pipe Mill reported an Ebitda loss of $11.4 million. Sales volume for the quarter stood at 53,210 net tonnes of plates and 4,611 net tonnes of pipes.
  • JSW Steel U.S.A, Ohio reported an Ebitda loss of $12.54 million during the quarter. The operations are currently idled temporarily to undertake a furnace upgrade project.
  • JSW Steel (Italy) reported an Ebitda loss of 7 milion euros for the quarter and sold 91,712 tonnes of rolled long products.

Projects, Capex And Debt

JSW Steel's facilities operated at an average capacity utilisation of 80% in May and June, according to the statement.

The expansion of the company's crude steel capacity at Dolvi, Maharashtra unit to 10 million tonnes per annum from 5 MTPA is likely to be commissioned in the second half of the ongoing financial year.

Its 8-MTPA pellet plant and the wire rod mill at Vijayanagar are likely to be commissioned in the second quarter of 2020-21. The capacity expansion of the cold-rolling mill complex at Vijayanagar to 1.8 MTPA from 0.85 MTPA will be commissioned progressively in second and third quarters of the fiscal ending March 2021.

The downstream modernisation-cum-capacity enhancement projects at Vasind and Tarapur, along with a colour coating line at Kalmeshwar, are likely to be commissioned in the seconf half of 2020-21.

JSW Steel spent Rs 2,369 crore as capex during the quarter, the statement said.

The company's consolidated net debt-to-equity stood at 1.54 times compared with 1.48 times in the preceding three months, while net debt-to-Ebitda stood at 5.74 times against 4.5 times in the quarter ended March.

Shares of JSW Steel closed 2.56% lower at Rs 204 apiece before the quarterly results were announced. That compares with the flat Nifty 50 Index.Hi

Highlights Of Conference Call

Earnings, Production Guidance And Debt

  • Southern and western India have been impacted more by Covid-19.

  • Lack of credit flows, destruction in demand and worker shortage were some of the challenges during the quarter.

  • Impact of lower iron ore and natural gas prices partially offset by higher coking coal and power costs.

  • June quarter results effectively includes performance for only two months.

  • Net sales realisation down by 12% quarter-on-quarter to Rs 4,000 per tonne.

  • Cumulative losses of overseas subsidiary stood at Rs 247 crore for the quarter.

  • Covid-19 impact at Vijayanagar unit weighed on operating performance.

  • Would be able to meet FY21 production guidance target of 16 million tonnes and sales of 15 million tonnes.

  • 90% capacity utilisation achieved at Vijayanagar unit; worker availability is improving.

  • Working closely with engineering, capital goods and automotive industry for exports.

On Acquisition of Insolvent Assets

  • Bhushan Power and Steel Ltd. case expected to come for hearing in Supreme Court; will complete acquisition after ruling.

  • Will follow equity method of consolidation for Bhushan Power and Steel.

Outlook Industry Trends

  • Domestic steel prices declined in May and June.

  • Prices of domestic steel hiked modestly in July; expect price rise in August.

  • Coking coal cost to sequentially fall to $20-25 per tonne in quarter ending September.

  • Iron ore prices hiked by Rs 200 per tonne, to partially reflect in September quarter numbers.

  • 5.5 million tonnes of steel was exported from India In June quarter.

  • Steel production remains in surplus in India.

  • 41% of Indian exports are semi-finished steel—slabs, billets among other products.

Global Trend

  • U.S. steel prices lower than China for the first time in many years.

  • China steel prices have been inching higher from April.

  • China is able to absorb steel production across world, including India.

  • China’s infrastructure demand is a great opportunity for Indian steel industry.

  • Seeing huge supply side (production) adjustment of nearly 14% across world (excluding China).

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