Jindal Steel & Power – A Powerless Performance

Jindal Steel & Power (JSPL)’s recently announced March 2013 quarter results have been below street estimates. The major reason for this is the global economic slowdown and subdued steel markets. For the March 2013 quarter, the company posted a consolidated topline of Rs 5648.44 crore as against Rs 5482.33 crore in March 2012 and Rs 4801.63 crore in December 2012. However, the higher raw material cost impacted the performance at the operating levels. The EBITDA for the quarter declined to Rs 1618.30 crore from Rs 1800.66 crore in December 2012 and Rs 1914.39 crore in March 2012 quarter. On the bottomline front, the net profit for the quarter stood at Rs 752.75 crore as against Rs 869.94 crore in December 2012 and Rs 1161.53 crore in March 2012. 

The drop has been mainly on account of a drop in realisations for the quarter. It is clearly seen from the fact that though the sales growth has increased by 23% in the steel products division on the volumes front and witnessed marginal decline in pellets (down by 5%) and Power segment (down by 7%), the sales growth has been quite slower at just 3% on a YoY basis. 

Regarding the yearly performance for FY13, JSPL has posted a topline of Rs 19806.78 crore as compared to Rs 18208.60 crore in FY12, posting a growth of 9%. On the bottomline front, the net profit before exceptional items has declined by 14% to Rs 3485.74 crore as against Rs 4050.49 crore. Considering the exceptional item, the bottomline stands at just Rs 2911.62 crore. 

The results have not been good by any means and no wonder the stock is trading in red. However, there are certain positive aspects too. 

The management, in the press release, has stated that new sources of raw materials were established and made operational. This has helped the company continue operations smoothly while many others faced issues on account of a ban on iron ore mining. The company, which hitherto focused mainly on B to B business, made an impressive foray into the retail market for its standard products.  

The other highlights are as follows:

• JSPL is all set to increase its steel capacity from 3.5 MTPA to 7.0 MTPA in 2013‐14
• Exports increase by 30% (by value) in FY 12‐13 as compared to FY 11‐12
• Number of customers increased from 2139 in FY 11‐12 to 2758 in FY 12‐13
• Production of Oman HBI plant increased by 22% during FY 12‐13 (1.52/1.24)
• Production of coking coal started in Mozambique
• JSPL’s power production capacity would double during 2013‐14 i.e. from 2,434 MW to 4,969 MW

As regards our call, we recommend investors to avoid the scrip at the current levels.