Cost spike weighs on JSW Steel as profits slump 86% in first quarter

Firm scales down capex plans

The country’s largest steel producer JSW Steel reported a consolidated net profit after tax of Rs 839 crore in the first quarter of the fiscal year(Q1), falling 85.7 per cent from Rs 5,900 crore a year ago. The company saw its profit decline on the back of surge in raw material cost and lower sales due to export duty. JSW Steel reported a net profit of Rs 3,343 crore in the last quarter of the previous fiscal (Q4FY22).

The company’s cost of materials jumped from Rs 10,831 crore to Rs 25,597 crore in the quarter as higher cost of coking coal came into effect.

The total revenue from operations increased 31.77 per cent year-on-year to Rs 38,086 crore on higher production volumes, compared to Rs 28,902 crore in the corresponding period last fiscal.

The current market conditions have prompted JSW to scale down its capex for the current fiscal. The steelmaker said that it expects to calibrate its capex spend to Rs 15,000 crore for the year against the planned capex spend of Rs 20,000 crore. In Q1FY23, capex spending was at Rs 3,702 crore.  

The domestic steel industry, JSW said, was impacted by falling global prices and the imposition of a 15 per cent duty on certain steel exports in May 2022 further exacerbated the situation with a steep fall in exports, of 26 per cent quarter-on-quarter (QoQ). India’s steel consumption also fell 5.6 per cent QoQ.

The company’s capacity utilization in Q1 fell as it advanced certain shutdowns that were scheduled during the year. 

The average capacity utilization (excluding Dolvi Phase-II) was at 93 per cent, lower compared to 98 per cent in Q4FY22.

JSW is expecting the export duty on steel products to be a temporary measure to contain inflation. The company said that the inherent demand from auto and construction and infrastructure segments remained strong and should support overall steel consumption during FY23.

Among its subsidiaries, JSW Steel Coated Products reported a loss after tax of Rs 209 crore. Bhushan Power & Steel reported a profit after tax of Rs 221 crore for the quarter.

Among the foreign units, US Plate and Pipe Mill recorded an Ebitda of $33.06 million, an increase 14 per cent QoQ and JSW Steel (Italy), an Ebitda profit of €4 million for the quarter.

The company’s consolidated net gearing (net debt to equity) stood at 0.98x at the end of the quarter (as against 0.83x at the end of Q4FY22), and net debt to Ebitda stood at 2.03x (as against 1.45x at the end of Q4FY22). A significant portion of increase in debt was mainly due to locking up of working capital in inventory, JSW said.

JSW flagged global macroeconomic challenges and said that India was relatively resilient. However, high inflation and energy costs were having some impact on domestic consumption, it said. Policy rate tightening by the Reserve bank of India (RBI) and global central banks along with slowing global growth could impact near-term GDP growth, JSW further said.