Analysts have cut FY24/25E earnings before interest, taxes, depreciation, and amortisation (Ebitda) estimates of JSPL on higher coking coal price assumption and delays in capacity addition.
The stock was trading at its lowest level since July 12, 2023. It has corrected 18 per cent from its 52-week high level of Rs 722.15 touched on September 15.
In the July to September quarter (Q2FY24), JSPL’s consolidated net profit after tax surged more than six-fold to Rs 1,390 crore. Besides, Ebitda grew 19 per cent year-on-year (YoY) at Rs 2,213 crore led by lower input costs, partially offset by lower ASP.
The management said the strong performance was driven by a sharp reduction in costs, which offset seasonally weak pricing environment during the quarter.
However, the production and sales stood at 1.90mt (up 4 per cent YoY) and 2.01mt (flat YoY), respectively. Consolidated gross revenues, thus, were down 9 per cent YoY at Rs 14,128 crore.
Moreover, JSPL’s ongoing capex at Angul has been delayed by a few quarters and a majority of the capex is now expected to be completed by the end of FY25.
“Though the ongoing capex is going to shift JSPL’s product portfolio to higher value-added product (VAP), extension in capex timeline along with an increase in cash outflow will continue to put pressure on the cash flow. The timely completion of capex is crucial for volume growth ahead,” Motilal Oswal Financial Services (MOFSL) said in a result update.
Considering the substantial increase in coal cost in the last few months and delayed capex, the brokerage firm has cut its FY24E and FY25E Ebitda estimates by 13 per cent and 6 per cent, respectively. MOFSL believes JSPL’s focused approach on deleveraging, presence across VAP, and robust domestic demand augur well for the company.
Analysts at Prabhudas Lilladher, too, cut FY24/25E Ebitda estimates by 9 per cent/7 per cent on higher coking coal price assumption and delays in capacity addition respectively.
“JSPL is well poised to take dual benefit of volume growth and improvement in product mix over FY23-26E post commissioning of hot-stripped-mill (HSM). However, there has been delays of few quarters in blast furnace commissioning which would impact FY25 volumes,” the brokerage firm said in its result update.
JSPL is partially dependent on third-party suppliers for both the key raw materials, viz, iron ore and coking coal, which is largely met through open market and imports, respectively. These raw materials have shown a volatile trend in prices over the years. The volatility in the prices of raw materials is bound to impact the profitability of steel players in India, CARE Ratings said in its rating rationale.
The ratings continue to be constrained by the inherent cyclical nature of the steel industry and the susceptibility of profit margins to volatile raw material prices and fluctuating steel prices. This apart, the ratings are also constrained by the risks related to the execution of an expansion project in Angul, Odisha, in a subsidiary company, the ratings agency said.
Going forward, CARE Ratings expects that although raw material prices will continue to remain volatile, domestic steel players are better placed to partially pass on the increase amid strong domestic demand and improving exports volumes post removal of the export duty in November 2022.