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Informist, Tuesday, Oct. 15, 2024

 

By Rajesh Gajra

 

MUMBAI – JSW Steel Ltd., the country's largest steel manufacturer, may report very weak bottom line growth, and one of the worst on-year growth in revenue in its history, in the quarter ended September. The operating profit is also seen hit badly and will likely be a multi-quarter weak show. The underlying causes for this would be weak domestic and overseas demand, steel imports from China in the domestic market, and overall pressure on steel prices due to China and other factors worldwide.

 

Despite these weak factors, which analysts believe played out in Jul-Sep and negatively affected the company, JSW Steel actually produced more steel during the quarter. In an update earlier this month, the company said total production volume in the September quarter increased by 6% on year to 6.77 million tonne with the company's factories in India producing 6.63 million tonne, 7% higher than a year ago. The production at JSW Steel's overseas subsidiary in Ohio, US, was flat at 0.14 million tonne.

 

Estimates by 10 brokerages on JSW Steel's consolidated net profit for the September quarter vary widely from a low of INR 1.03 billion by broker Elara Securities (India) to a high of INR 15.5 billion by broker Prabhudas Lilladher. The estimates of these two brokers are the outliers. Elara's estimate is around half of the next higher number and Prabhudas Lilladher's estimate is more than double the next lower number.

 

Excluding these two estimates, JSW Steel's consolidated net profit for the quarter will likely be INR 4.01 billion, down 85% on year and 53% on quarter. If the on-year net profit fall of 85% pans out, then it will be third consecutive quarter of all and the worst growth rate in seven quarters.

 

The company's revenue from operations is seen at INR 419.28 billion as per an average of estimates by the 10 brokerages, representing 6% decline on year and 2.4% decline sequentially. The estimates for the revenue range from a low of INR 400.10 billion to a high of 444.10 billion. If the average estimate comes true, the on-year decline of 6% would be the second time it would have recorded negative growth in at least 17 quarters. The last quarter this happened was as recently as the March quarter when it declined 1.5%.

 

The operating profit, as denoted by the earnings before interest, tax, depreciation, and amortisation, is seen between INR 45.14 billion and INR 51.08 billion. Both, the upper and lower ends of the range, are below the year ago quarter's EBITDA of INR 86.88 billion. JSW Steel's EBITDA had also fallen on year in the previous two quarters, 23% in Apr-Jun and 25% in Jan-Mar. In the previous quarter, the company's consolidated EBITDA margin had contracted sharply to 13.1% from 17.3% a year ago and 13.5% in the previous quarter.

 

No brokerage expects the company to have recorded sales close to the reported India production volume of 6.63 million tonne. Both Kotak Securities' institutional equities team and Nuvama Wealth Management see India sales volume at 5.2 million tonne, lower by nearly 4% on year. ICICI Securities sees it flat at 5.4 million tonne and Prabhudas Lilladher estimates it to be 5.5 million tonne or 1.9% higher than the year ago quarter.

 

The revenue is seen declining on average due to lower steel prices and realisations, amid stagnant to declining volume and sluggish demand. JSW Steel's sales realisation is seen declining 6.1% on year by Nuvama Wealth, 5% by Motilal Oswal Financial, and 2.2% by Kotak Securities.

 

The EBITDA per tonne is seen getting badly hit. Motilal Oswal Financial, Kotak Securities, and Nuvama Wealth expect it to decline by 41-45%, Prabhudas Lilladher believes it won't be that bad and instead fall by around 36%.

 

JSW Steel's bottomline is expected to track the weak performance in the profitability. The company will detail its earnings on Oct 25. Post-results, analysts will be expecting management updates on demand conditions in the September quarter and their view on the remainder of financial year 2024-25 (Apr-Mar). Updates on capital expenditure and capacity upgrades will be also be watched by the analysts.

 

On the National Stock Exchange, shares of JSW Steel Tuesday closed at INR 1,000.85, down 1.2% from Monday.

 

Following are the Jul-Sept consolidated earnings estimates of JSW Steel based on reports compiled by Informist from 10 brokerage houses:

 

Brokerage firm	Net sales	Net profit	EBITDA
	------------(In INR million)----------
Antique Stock Broking Ltd	438,371	2,319	45,981
Elara Securities (India) Pvt Ltd	417,523	1,034	45,187
ICICI Securities Ltd	410,565	5,263	50,398
IDBI Capital Market Services Ltd	414,131	2,483	45,140
Kotak Institutional Equities	421,135	6,587	51,076
Motilal Oswal Financial Services Ltd	414,389	4,522	45,411
Nuvama Wealth Management Ltd	400,096	2,035	46,518
Prabhudas Lilladher Pvt Ltd	444,100	15,500	---
Sharekhan Ltd	424,400	3,390	---
YES Securities (India) Ltd	408,084	5,462	45,993
Average	419,279	4,860	48,634

 

End

 

Edited by Ashish Shirke

 

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