JSW Steel Q2 review: Keep expectations low near term

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26 Aug, 2025 12:21

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Jitendra Kumar GuptaMoneycontrol Research

The one-way upward movement in steel prices over the last couple of years seems to be slowing with the risk of volatility increasing. On top of this, higher inputs prices or raw material prices for iron ore, coal and others such as electrodes pose a threat for steel manufacturers.

JSW Steel, too, is feeling the pinch. During the quarter ended September 2018, the company’s realisations remained flat at Rs 49,700 a tonne compared with March quarter of the current fiscal. Moreover, in this period, the margins shrank because of the cost pressure. As a result, the earnings before interest, tax, depreciation and amortisation (EBITDA) fell from Rs 13,329 a tonne in March 2018 quarter to 12,389 a tonne in the September quarter.

Results at a glance

Barring near-term pressure, the Q2FY19 results were quite good compared to the corresponding quarter of last fiscal. The company was able to post 1 percent growth in consolidated saleable steel volumes to 3.91 million tonnes. Because of the strong year-on-year (YoY) growth in steel realisations, revenue increased by 25 percent to Rs 21,552 crore.

During the quarter, domestic realisations came at Rs 49,669 per tonne reporting a 29 percent YoY growth compared to the corresponding quarter last year. Part of this is due to value-added products that form close to 55 percent of its total sales and a strong 36 percent YoY growth in sales to automotive customers.

Higher realisations had a huge positive impact on consolidated profitability. During the quarter, EBITDA jumped 62 percent to Rs 4,906 crore and net profits soared by 150 percent to Rs 2,087 crore.

Outlook and valuations

The company is in the process of integrating three (two overseas and one domestic acquisition of Monnet Ispat) of its recently acquired companies and thus at a consolidated level, there is some pressure caused by the integration, which it believes will ease as the turnaround takes place.

The other big development would be the bidding for Bhushan Power, the outcome of which will be known by November 2, 2018. This is going to be a big acquisition and details of its funding would have a bearing on the financials of the company and on the stock.

That apart, it is also expanding its capacity by 6.7 million tonnes at Dolvi and Vijayanagar and benefits will accrue from fiscal 2021.

In light of these developments, monitoring debt would be crucial. The company has already seen a spike in its debt, while it remains comfortable at 1.46 times its equity and 2.35 times EBITDA.

Besides, it has also taken aboard approval for Rs 5,000 crore of the rights issue and raising funds through other instruments in anticipation of funds requirement for organic and inorganic growth. In the context of these risks and valuations, at 7.5 times EV to EBITDA and 10 times its earnings of FY20, investors should have lower expectations in the near term.