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Last Updated : Jul 26, 2019 05:04 PM IST | Source: Moneycontrol.com

JSW Steel Q1 profit falls 56% at Rs 1,028 cr on weak demand

The company reported crude steel production of 4.24 million tonnes, higher by 3% YoY.

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JSW Steel has registered 56.4 percent fall in its Q1FY20 (April-June) consolidated net profit at Rs 1,028 crore on the back of lower sales volumes due to subdued steel demand.

The company had reported profit of Rs 2,366 crore in the same period last fiscal.

"Indian economic activities during the quarter were underpinned by a general lack of credit availability, resulting in muted business sentiment across various consuming sectors," said the company.

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Even though the company's maintained its annual guidance in production, which was up three percent, its sales was down by two percent.

Revenue of the company declined 3.4 percent at Rs 19,812 crore against Rs 20,519 crore.

Earnings before interest, tax, depreciation and amortization (EBITDA) was down 27.2 percent at Rs 3,716 crore versus Rs 5,105 crore, while margin was down 610 bps at 18.76 percent against 24.88 percent.

The demand slowdown has led to higher inventory levels. While overall, the inventory was at 1.2 million tons, up 3 lakh tons from a year ago, the finished goods inventory increased to 25 days, from the otherwise 20 days.

The company bottomline was impacted by inventory loss. While in its overseas businesses - in the US and Europe - JSW Steel suffered an inventory loss of Rs 164 crore, in India the loss was of Rs 90 crore.

But the company is hopeful of demand picking up in the coming quarters on the back of higher govenment spending on infrastructure. "Last year too, 60 percent of the steel demand came from government spending. We are hoping that later in the year, this will go up," said Seshagiri Rao, Jt MD and Group CFO.

He added that the auto sector, which is going through a slump, constitutes to only about 10 percent of the steel demand in the country.

Cost-cutting measures

JSW Steel has opened its fourth iron ore mine in Karnataka, where its Vijaynagar facility is situated. "This will add another 1.2 million tons of iron ore this year," said Rao. Overall, 5 million tons of iron will come from the four mines.

The company is close to acquiring another three iron ore mines in the state. "These mines have reserves of 93 million tons, and will add another 2.5 million tons to annual iron ore production," said Rao. He added that these mines will meet 35 percent of the company's annual iron ore needs this financial year.

Iron ore prices have jumped 71 percent in the first six months of the year, and were up 38 percent in the first quarter of the financial year.

The board of directors approved the raising of long term funds via issuance of secured/unsecured, redeemable, non-convertible debentures not exceeding Rs 10,000 crore, by way of private placement and/or by way of public issuance, in one or more tranches, in the domestic market.

The board has also approved the raising of long term funds, through issuance of non-convertible foreign currency/rupee denominated senior unsecured fixed rate bonds upto USD 1 billion, in one or more tranches, in the international market(s).

Domestic steel demand during the quarter was impacted by weaker activity levels. This subdued steel demand led to lower sales volumes and accumulation of inventory across the industry, company said in release.

The company reported crude steel production of 4.24 million tonnes, higher by 3% YoY.

The saleable steel sales for the quarter stood at 3.66 million tonnes, lower by 3% YoY.

The company was able to reduce its conversion costs (power and fuel costs, stores and spares and other manufacturing expenses) due to subdued fuel prices and lower prices of electrodes and refractories.

JSW Steel ended at Rs 249.65, up Rs 0.90, or 0.36 percent on the BSE.

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First Published on Jul 26, 2019 04:30 pm

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