Earnings Outlook
JSW Steel PAT seen down for 4th quarter on falling steel prices
This story was originally published at 22:23 IST on 22 January 2025
Register to read our real-time news.Informist, Wednesday, Jan. 22, 2025
By Aman Aryan
MUMBAI – Lower-than-expected recovery in demand after the festival season and fall in domestic steel prices compared to previous year are expected to weigh on JSW Steel Ltd.'s earnings for the December quarter. Though the country's largest steel manufacturer reported its highest-ever steel output for the quarter, fall in product prices due to rise in steel imports from China would have likely dragged down the company's consolidated net profit for four quarters in a row.
In an update earlier this month, the company said total production in the December quarter rose 2% on year to an all-time high of 7.03 million tonnes. The company produced 6.82 million tonnes of steel in India during the quarter, up 3% on year.
The flagship company of the JSW group is expected to post a consolidated net profit of INR 6.59 billion for the December quarter, down 73% from a year ago, according to an average of estimates from 10 brokerage firms. This will be the company's fourth consecutive quarter of on-year fall in net profit. JSW Steel's consolidated net profit has fallen 65%, 64%, and 84% on year in the previous three quarters. If the estimates turn out to be true, this will be the third quarter of the year when JSW Steel's net profit is below INR 10 billion. The company is scheduled to announce its December quarter earnings Friday.
Lower prices of flat steel are expected to hurt JSW Steel's revenue for the December quarter. The company's consolidated revenue is seen down 3% on year at INR 405.74 billion, according to an average of estimates from 10 brokerage firms. At 3% on-year fall in revenue, it will be the fourth consecutive quarter of lacklustre performance for the company. Its consolidated revenue fell 11% on year in the previous quarter, rose just 1% in the June quarter, and fell 2% in the March quarter of the previous financial year.
Estimates for the steel-maker's net profit range from INR 3.2 billion by Nuvama Wealth Management Ltd. to INR 9.2 billion by Systematix Shares and Stocks (India) Ltd. However, Systematix gave the lowest estimate of INR 384.90 billion for the company's consolidated revenue, while JM Financial Institutional Securities Pvt. Ltd. gave the highest estimate of INR 431.24 billion.
While the price of long-steel recovered in the December quarter, flat steel continues to see pricing pressures, analysts said. Indian steel markets witnessed a divergent price trend in the December quarter with prices of long products moving up by INR 1,000 per tonne, but prices of flat products fell INR 2,500 per tonne, JM Financial said. Elara Securities, on the other hand, said flat steel prices fell in the range of 13-15% on year and 5% sequentially, and prices of long and semi-finished products fell in the range of 3-4% on year but rose in the range of 3-5% sequentially.
The operating profit or earnings before interest, taxes, depreciation, and amortisation is seen down 28% at INR 51.98 billion, according to an average of estimates from eight brokerage firms. Estimates for the company's EBITDA range from INR 48.30 billion to INR 55.70 billion. JSW Steel's EBITDA had also fallen on year in the previous three quarters -- 31% in Jul-Sept, 23% in Apr-Jun, and 25% in Jan-Mar. In the previous quarter, the company's EBITDA margin had contracted sharply by 4 percentage points to 13.7% from 17.7% a year ago.
None of the brokerages expect the company to have recorded sales close to the reported India production volume of 6.82 million tonnes. Kotak Institutional Equities expects the company to report sales volume of 5.46 million tonnes and Nuvama Wealth expects the company to report standalone volume of 5.62 million tonnes.
A rise in iron ore prices is expected to trim the benefits of a fall in coking coal prices, analysts said. Both iron ore and coking coal are important raw materials, which accounted for more than 56% of the company's total expenses for the September quarter. During Oct-Dec, coking coal cost fell $20-$25 per tonne sequentially but iron ore cost rose INR 300–INR 400 per tonne sequentially, Nuvama Wealth said. The sequential rise in iron ore prices would have likely hurt ferrous metal companies' margins for the quarter, Motilal Oswal Financial Services said.
Of the 11 brokerage reports on the company available with Informist, five have a 'buy' or equivalent rating, three have a 'hold' or equivalent rating, and three have a 'sell' or equivalent rating. Wednesday, shares of the company closed at INR 919.40 on the National Stock Exchange, down 0.8%. The stock is 15?low the lowest target price by a brokerage with a 'buy' rating and down 2.6% from the closing price on Oct. 25, when it released earnings for the September quarter.
Following are the Oct-Dec earnings estimates for JSW Steel Ltd. based on reports compiled by Informist from 10 brokerages in descending order by the estimate of net profit:
| Brokerage Firms | Net Sales | Net profit | EBITDA |
| ----------(In INR million)------- | |||
| Systematix Shares and Stocks (India) Ltd. | 384,900.00 | 9,200.00 | 55,700.00 |
| Prabhudas Lilladher Pvt. Ltd. | 408,400.00 | 8,400.00 | 51,300.00 |
| Motilal Oswal Financial Services Ltd. | 421,272.00 | 8,192.00 | 50,654.00 |
| JM Financial Institutional Securities Pvt. Ltd. | 431,241.00 | 7,684.00 | 54,888.00 |
| Kotak Institutional Equities | 385,807.00 | 7,623.00 | 53,816.00 |
| Sharekhan Ltd. | 385,700.00 | 7,200.00 | -- |
| Anand Rathi Share and Stock Brokers Ltd. | 409,078.00 | 5,375.00 | -- |
| Elara Securities (India) Pvt. Ltd. | 407,240.00 | 4,756.00 | 50,203.00 |
| IDBI Capital Market Services Ltd. | 406,286.00 | 4,274.00 | 50,989.00 |
| Nuvama Wealth Management Ltd. | 417,500.00 | 3,200.00 | 48,300.00 |
| Average | 405,742.40 | 6,590.40 | 51,981.25 |
End
US$1 = INR 86.32
Edited by Ashish Shirke
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