JSW Steel Limited will likely see its consolidated profit after tax (PAT) decline by 70-80 percent year on year when it declares its results on July 22 for the quarter ended June 2022, according to a poll of brokerages conducted by Moneycontrol.
The PAT for one of India’s largest steel producers is expected to range between Rs 1,000 and Rs 1,800 crore. The consolidated revenue for the quarter is seen growing 33-40 percent on year to Rs 38,400-Rs 40,000 crore.
On a sequential basis, PAT is likely to slump by 45-70 percent as revenue takes a hit of 15-18 percent due to lower offtake as a result of the imposition of export duty as well as the moderation of domestic demand due to higher commodity prices.
The markdown in PAT, due to higher pet coke and power & fuel costs, was offset to a certain extent by the softness in iron ore prices.
The OP Jindal group company recorded a consolidated PAT of Rs 5,904 crore and consolidated revenue of Rs 28,902 crore during the corresponding period last year.
During the March 2022 quarter, the steel-maker achieved a PAT of Rs 3,234 crore on revenue of Rs 46,895 crore. Adjusting for an exceptional item of Rs 741 crore, the profit during the previous quarter would have been Rs 3,975 crore.
Brokerage views
Steel volumes & realisation
Brokerages expect volumes to grow on a yearly basis but the imposition of export duty and higher prices will likely dent volumes sequentially.
“We expect JSTL to report a volume decline of 20 percent QoQ (+14 percent YoY) in Q1FY23 on demand moderation at higher prices and lower exports post imposition of the export tax,” Kotak Institutional Equities said in a report.
The brokerage estimates steel realisation to increase by 6 percent QoQ (+4 percent YoY) due to higher steel prices in the domestic market.
Prabhudas Liladhar analysts said, “Volume is expected to contract by 20 percent QoQ at 4.1 million tonnes, while realizations are expected to increase by 6.6 percent (Rs 4,618/ton) QoQ to Rs 75,090/ton”.
Costs
Higher prices of coking coal are likely to be a drag on input costs, which further accentuated the higher power and fuel costs. The reduced prices of domestic iron-ore provided some comfort.
“We expect raw-material cost to increase sequentially with an increase in coking coal costs offset by marginally lower iron ore prices basis which we estimate EBITDA/ton (earnings before interest, tax, depreciation and amortization per ton) to decline by 14 percent QoQ to Rs 11,621/ton (- 56 percent YoY)”, a report from Kotak Institutional Equities said.
Key monitorables
Experts will be keenly watching the management’s comments on the impact of the export duty and loss of exports, which will be important to understand domestic profitability. Coking coal costs will continue to be a key monitorable, as they have been on a declining path.
On July 21, JSW Steel closed Rs 2.80 lower at Rs 587.55 on the National Stock Exchange. The stock has generated negative returns of 13.85 percent over the past year and is trading flat over the past month.
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