JSW Steel Q3 Preview: Net profit seen under pressure amid weaker realisations

jsw steel

JSW Steel is anticipated to report a significant decline in its net profit for the December quarter, primarily due to weaker realisations. However, lower coking coal costs and higher realizations in certain segments are expected to partially mitigate the losses. The company's Q3 earnings report is scheduled for a release on January 24.

As per a Moneycontrol poll of nine brokerages, JSW Steel is expected to report a 74 percent year-on-year (YoY) decline in net profit to Rs 638.79 crore for Q3. On a sequential basis, it is likely to witness an 18 percent drop. Revenue is forecasted to rise modestly by 4 percent YoY but is likely to decline slightly quarter-on-quarter (QoQ) to Rs 41232 crore.

Meanwhile, analysts estimates pegged earnings before interest, taxes, depreciation, and amortization (EBITDA) to fall by 4 percent YoY and 28 percent QoQ, to Rs 5,225.18 crore.

What factors are driving the earnings?

Experts anticipate a 6 percent sequential increase in consolidated volumes, accompanied by a 4 percent decline in realisations. EBITDA is expected to be adversely impacted by lower realisations in domestic operations, although higher sales volumes may provide some offset. However, overseas subsidiaries are likely to face losses due to a subdued operating environment.

Muted revenue growth: Experts forecast revenue to remain flat quarter-on-quarter (QoQ) and decline by 5.5 percent year-on-year (YoY) to Rs 396.4 billion, primarily due to a drop in realisations for both flat and long steel products. On a QoQ basis, the impact of falling steel prices is expected to be mitigated by increased volumes, aiding the company in meeting its annual sales guidance of 27 million tonnes.

Weaker realisations: Experts estimate that blended realizations will decline by Rs 2,000 per ton quarter-on-quarter (QoQ), driven by a reduction in flat steel prices. Standalone volumes are expected to grow by 3 percent QoQ to 5.45 million tonnes. EBITDA per ton is projected to drop by Rs 650 to Rs 8,106, reflecting a 7 percent sequential decline.

Margin performance: EBITDA is expected to be impacted by lower steel prices, with realizations declining by Rs 1,950 per ton quarter-on-quarter (QoQ). Additionally, higher input costs, including a $25 per ton increase in coking coal and a Rs 500 per ton rise in iron ore costs, are likely to weigh on profitability. However, these pressures may be partially offset by improved sales volumes, which are projected to rise by 9 percent QoQ to 5.68 million tonnes.

What to look out for in the quarterly show?

The quarterly performance of JSW Steel will be shaped by revenue trends influenced by declining realisations for both flat and long steel products. A key focus will be the comparative performance of domestic operations, which face pressure from lower realisations but may benefit from higher sales volumes, versus overseas subsidiaries that are expected to report losses due to a subdued operating environment. Additionally, EBITDA per ton will be closely monitored, as rising input costs, including higher prices for coking coal and iron ore, are likely to weigh on margins.

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