JSW Steel’s net profit declined to Rs. 839 crores in Q1 FY23.

JSW Steel’s net profit declined to Rs. 839 crores in Q1 FY23.

Net profit declined to Rs. 839 crores compared to Rs. 5900 crores in June 2021. The total revenue reported was down by 32% YOY and 19% QOQ to Rs. 38126 crore in June 2022. EBITA stood at Rs. 4,309 crore and the EBITDA margin declined by 29% to 11.3%. The fall in EBITDA was contributed to by the lower volume of sales, loan translation losses, NRV provisions, etc.

The domestic steel industry was impacted by global events and the imposition of a 15% duty on steel exports in May 2022. Exports fell by 26% from March 2022 to June 2022.crude steel production was at 5.77 million tonnes and saleable steel sales were at 4.449 million tonnes. It was up 12% YOY but down by 21% QOQ, mainly due to a sharp drop in export volume. The company’s average capacity utilisation for the quarter was 93% in June 2022 compared to 98% in March 2022. They have also planned the maintenance shutdowns that were scheduled for during the year. This lowered the average capacity utilisation.

Among the subsidiaries, JSW Steel Coated Products recorded an EBITDA loss for provisioning for inventory, while BPSL’s EBITDA was down by 55% QoQ. Acero Junction’s EBITDA plunged down 87% QoQ; however, Plate and Pipe Mill reported better numbers on strong shield demand for EBITDA, up 14% QoQ. Europe managed to get rail orders, thus securing the operating margin.

As the inventory is rising and demand is weak, coupled with few opportunities to export in the near term, the company has moderated its fabrication. We have slightly reduced our volume forecast for FY23, but management remains confident that lost volumes will be recovered in the coming quarters.JSW is finalising its deal with a few auto makers for a hike of Rs.900/t and is still negotiating with the major auto players. The company has also started to buy coal from Russia at a discount. However, Australia is the major source of coal for JSW.

We expect the excess finished steel inventory in the industry to prohibit any future price hikes. To evacuate the inventory, the companies will have to slow down production or export some quantities. This will be over by Q2 – Q3 FY23 and price hikes can be seen. We believe one more round of correction will happen in the steel industry. As it is a cyclical industry, weak quarters are expected due to monsoons, which supports our dip in the stock price.

The stock price closed at Rs. 596.65 on Tuesday and touched an intraday high of Rs. 599 and an intraday low of Rs. 581.60. The 52-week high for the company was Rs. 790 and the 52-week low was Rs. 520. The market cap was at Rs. 143 lakh crore.