Events and Updates

Title: SW scores over peers, but industry woes cloud outlook

Posted on: 7th February 2019

Mumbai: JSW SteelNSE -1.18 % reported a decline in its December quarter net profit and the outlook for the steel industry may be clouded by rising imports and higher input costs.

Net consolidated profit suffered a decline of 9.6 per cent at Rs 1,603 crore even as standalone net profit reported a growth of 68 per cent. The acquisitions of Acero Junction in the US and Aferpi in Italy led to a surge in interest cost by 26.5 per cent. Cost of inputs also went up by 19.8 per cent, affecting net profit.

The sharp fall in exports, resulting from global trade barriers, played a role in the management’s decision to marginally lower the sales guidance. The performance at home remained resilient but exports fell to 10 per cent of sales from 30 per cent a year ago, and the volume guidance for FY19 was lowered to 15.7 MT from 16 MT.

Still, thanks to its financial discipline and low costs, JSW Steel appears better placed than local peers but the outlook for the industry remains weak, with exports declining and imports rising. Also, rising coking coal and iron ore prices could hurt the overall profitability.

In the December quarter, JSW’s production was in line but its sales volume fell to 3.6 MT, below the average of 4-4.2 MT and down 7 per cent year on-year. Globally, steel prices were down, but the company’s realisation per tonne remained flat due to long-term contracts.

Even as the third quarter enjoyed high domestic steel prices, softening of the prices starting late December have been a cause of worry for steelmakers. However, Seshagiri Rao, joint MD and group CFO of JSW Steel, said that the prices have bottomed out and will remain buoyant for at least the next six months.

“We don’t see prices falling further because of two reasons; first, internationally we are already seeing an uptick of $40 per tonne across geographies. Second, a surge in input prices will also drive selling prices up,” Rao said.