JSPL's Q2FY12 results - What should be your strategy?
Srujani Panda / 20 Oct 2011
Jindal Steel and Power came out with its Q2 FY12 results on 18th October, 2011, and reported a robust topline growth of 43% on a consolidated basis. The growth in the topline was mainly on account of higher total steel sales volume, which increased by 29% YoY. The growth was spurred further by the higher sales of pellets, which increased by 51.6% QoQ due to higher production during the quarter, as the company started production from its new 5 MTPA capacity in Barbil, Orissa. However, the sales volume for the power division declined by 14.3%, largely due to higher internal consumption that resulted in lower sales volume.
On the operating front, profits increased by 13.5% on a YoY basis. Due to a significant increase in input costs, i.e. higher coking coal prices, margins came down by 1000 bps to 38.7%. The lower margins were also attributed to higher thermal coal prices, which went up due to lower availability of dry coal following a heavy monsoon.
Steel prices have fallen globally in the last two months, due to a slowdown in demand from China and other European countries following the debt crisis. However, steel prices in the domestic market have not fallen, largely because of higher input costs and a decline in steel production. We believe that JSPL’s backward integration for coal from African mines by March 2012 and the use of electric arc furnaces for producing hot metal will benefit the company by reduce the input costs in a high coking coal price scenario.
However, the scrip has underperformed the market in the past one quarter, declining 17.5%, as against a 9% decline in the Sensex. This is because of power projects that faced delays in commissioning/stabilisation and issues related to environmental body clearance of its power projects. The commissioning of the steel plant at Angul, Odisha, has also been delayed.
In conclusion, we believe that there has been a slowdown in the demand for steel. The high raw material prices, coupled with the delay in expansion of the company’s power projects will impact the company’s operating performance. Therefore, we recommend that investors should stay away from the scrip.
About Jindal Steel and Power
Jindal Steel and Power (JSPL), headed by Navin Jindal, is a part of the OP Jindal group. JSPL is a major steel producer and power generation company through backward integration from its captive coal and iron-ore mines. The company operates in two major segments of iron and steel production, and power generation.
On the operating front, profits increased by 13.5% on a YoY basis. Due to a significant increase in input costs, i.e. higher coking coal prices, margins came down by 1000 bps to 38.7%. The lower margins were also attributed to higher thermal coal prices, which went up due to lower availability of dry coal following a heavy monsoon.
Steel prices have fallen globally in the last two months, due to a slowdown in demand from China and other European countries following the debt crisis. However, steel prices in the domestic market have not fallen, largely because of higher input costs and a decline in steel production. We believe that JSPL’s backward integration for coal from African mines by March 2012 and the use of electric arc furnaces for producing hot metal will benefit the company by reduce the input costs in a high coking coal price scenario.
However, the scrip has underperformed the market in the past one quarter, declining 17.5%, as against a 9% decline in the Sensex. This is because of power projects that faced delays in commissioning/stabilisation and issues related to environmental body clearance of its power projects. The commissioning of the steel plant at Angul, Odisha, has also been delayed.
In conclusion, we believe that there has been a slowdown in the demand for steel. The high raw material prices, coupled with the delay in expansion of the company’s power projects will impact the company’s operating performance. Therefore, we recommend that investors should stay away from the scrip.
About Jindal Steel and Power
Jindal Steel and Power (JSPL), headed by Navin Jindal, is a part of the OP Jindal group. JSPL is a major steel producer and power generation company through backward integration from its captive coal and iron-ore mines. The company operates in two major segments of iron and steel production, and power generation.
If you want to stay updated with the share market news today, keep a close watch on the indian stock market today with real time movements like sensex today live and overall stock market today trends. Investors tracking ipo allotment status, ipo news today, or the latest ipo india can also follow daily updates along with bse share price live data. Whether you are learning how to invest in stock market in india, preparing for a market crash today, or searching for the best stocks to buy in india, insights on top gainers today india, top losers today india, trending stocks india and long term stocks india help in making informed investment decisions.