JSW Steel’s Sales Surge by 5.5% in Q3FY13

JSW Steel, a part of the JSW group, has announced its December 2012 quarter results. On a consolidated basis, the sales of the company have increased by 5.5% to Rs 8866.2 crore against the same quarter last year, whereas the operating profit has increased marginally by 0.5% to Rs 1331 crore in the same time. However, the loss has widened to Rs 73.7 crore for the Q3FY13. 

The reason for such a lacklustre performance was largely due to a hit taken by JSW Steel’s associate company. JSW ISPAT Steel, one of its associate companies, has reported a loss of Rs 130.74 crore. If we exclude that, the company will return in profit which is reflected in its standalone performance, where it has posted a profit of Rs 137 crore against net sales of Rs 8275 crore. Another important factor that impacted the bottomline was a rise in the interest expenses that increased by 36% on a yearly basis to Rs 516 crore.

In terms of operational performance, the company has seen its volume increasing by 14% to 2.17 MnT for Q3FY13. Despite such an increase in volume, the capacity utilisation has remained at 78% in the quarter. The reason for such a low utilisation is the non-availability of iron ore from Karnataka, where the Supreme Court has suspended iron ore mining from certain categories of mines. 

However, things might change in the fourth quarter as more mines of ‘category A’ are expected to resume mining and NMDC might increase its iron ore production. The steel prices have also remained under pressure in the quarter due to high imports. For the 9MFY13, total steel imports were 5.79MnT which increased by 16.2% on a yearly basis.

The CMP of JSW Steel is currently trading at Rs 796, which discounts its 9MFY13 annualised EPS of Rs 38.4 by 20.72 times, and looks a bit expensive. Nonetheless, a long-term investor should utilise every dip in the prices to accumulate the stock as the outlook for the sector looks good in FY14. An impact of the government’s reform process, which began a few months ago, will start reflecting in the real economy that will lift the performance of this company which has a diversified interest in Mining, Steel, Power etc.