While on one hand, the company has been reducing its debt, recovery in steel cycle has been a great help in the overall turnaround.
One matrix that everyone constantly keeps an eye in case of JSPL (Jindal Steel & Power) is the reduction in debt. Post its December results, the company reported a significant reduction in net debt by about Rs 2800 crore to Rs 42407 crore.
The company recently received Rs 400 crore advance from JSW Energy on account of divestment of power assets and another about Rs 700 crore from the recent sale of oxygen plants.
While on one hand, the company has been reducing its debt, recovery in steel cycle has been a great help in the overall turnaround. JSPL has been able to cut its net losses to Rs 277 crore in the quarter ended December 2017 as against Rs 747 crore loss in the corresponding quarter last year. Banks like Axis Bank and HDFC Bank have upgraded the account to a standard assets from NPA as the company has been servicing its debt regularly.
Higher volumes and realisation drive growth
What has changed is the significant improvement in demand and realisations. During the quarter gone by, it reported 17% increase in sales volumes to 1.36 million tonnes of steel thereby aiding the 21% growth in consolidated sales to Rs 6993 crore.
Moreover, the contribution from power and international businesses (which takes up a large amount of capital employed) that have been the drag on financial performance in the past, is now increasing.
During the quarter, power business saw 600 basis points improvement in PLF to 40%. Its global ventures like mining in Africa and Australia witnessed improvement in production activities along with Oman Steel operations that reported 35.5% increase in production to 0.42 million tonnes.
Steel business continues to drive profitability. As against 80% sales contribution it makes close 99% of the consolidated segment profits of the company. Apart from realisation and volumes, which are driving operational efficiencies, higher contribution from the Angul facility resulted in improved profitability.
The company recently commissioned 2.5 million tonne capacity at Angul, where ramp us is happening and the full impact will be visible in the coming quarters. That apart, Oman facility made 190% increase in EBIDTA leading to overall 26% year on year increase in consolidated EBIDTA to Rs 1606 crore. The company reported 100 basis points improvement in margins to 23% thereby reducing net losses.
Path to recovery
Importantly, JSPL is generating good cash flow, which in the absence of capex is being used for retiring debt.
In Q3FY18 it made a cash profit of Rs 643 crore an increase of 116% compared to September quarter. Apart from debt management, which is adding to profitability, the improvement in international business, ramp up of steel production at Angul facility, reduction in cost and overall firm steel prices will continue to drive higher profitability. The company would probably start to report net profits probably from Q4FY18 onwards.As against an EBITDA of Rs 4660 crore in FY17, the company is expected to make close to Rs 7000 crore EBITDA this year and about Rs 9500 crore in FY19. At the current market price of Rs 266, stock is available at 6.5 times enterprise value to EBITDA of FY19, which is quite reasonable.