Jindal defies Q4 profit decline, beats estimates
Jindal Steel and Power Ltd, the largest steel producer in India’s central state of Chhattisgarh, has defied a Q4 profit decline and beat estimates. For the quarter ended March 31, 2023, the company has posted net profit of INR 2,476 crore ($367 million), up by 7.53% from the same quarter in the previous year, beating estimates of INR 2,420 crore ($359 million). Jindal’s total income for the quarter stood at INR 29,318 crore ($4.34 billion), an increase of 6.18% compared to the same quarter last year.
Steel business drives revenue growth
The revenue growth of Jindal Steel and Power Ltd is driven by its steel business. Revenue from steel business increased by 11.6% YoY to INR 24,151 crore ($3.58 billion) and contribution to total revenue increased to 82.3% from 80.3% in the same quarter of the previous year. The company has managed to increase production of the crucial raw material India imports from abroad in 2018-19, compensating for reduced availability of iron ore and coking coal, a key raw material. Jindal’s EBITDA margin for steel business has improved to 33% YoY in the current quarter from 30% YoY in the corresponding period of the previous year. As per the management, the steel business’ success is due to the strategic shift to producing long products, including TMT bars, instead of flat products.
Margins boosted due to long steel products
The margins of Jindal Steel and Power Ltd were boosted due to the strong demand for long steel products and a reduction in input costs. A reduction in key input costs like iron ore and coking coal had a positive impact on cost efficiencies. These cost saving measures increased the margin of profit of the steel business. The company’s focus on long steel products, which has higher profitability margins compared to flat products, led to higher output and profitability. Strong demand from rural, infrastructure and housing sectors, combined with the company’s focus on long steel products, is expected to boost the revenue growth of the company in the future.
Power business continues to be challenging
The power business of Jindal Steel and Power Ltd faces an uncertain outlook, as the market remains challenging for power producers. Revenue from the power business decreased by 22% YoY to INR 5,167 crore ($766 million) and its contribution to total revenue decreased to 17.6% from 19.9% in the same quarter of the previous year. The power business is still struggling with execution challenges for transmission projects and stressed assets, leading to higher finance costs. The overall debt on the power business is INR 22,000 crore ($3.27 billion) and the management is considering strategic options to cut down on this. Jindal Steel and Power Ltd has consolidated its coal blocks and power assets into a new subsidiary, where it is exploring various strategic options to reduce the debt in the power business.
Focus on hedging on key raw materials
Jindal Steel and Power Ltd is focusing on hedging against key raw material price volatility in the future due to the uncertainty surrounding global trade. The company is looking to reduce dependence on imported coking coal in the coming years by using domesically produced coal in its factories. Moreover, the company has recently signed an MoU with Australia’s BlueScope Steel to set up a factory that will produce metallic coated and painted steel products in India.
Outlook for 2019-20
The outlook for Jindal Steel and Power Ltd is positive, driven by the growth in the steel business. The company is optimistic about the long-term demand from the infrastructure sector due to the government’s focus on building infrastructure in the country. Moreover, the demand from the construction sector, rural and housing sectors, and the automotive sector is expected to continue to grow in the next few years, which will drive the overall demand for steel. The company will continue with its focus on TMT bars and long products, which have higher profitability margins compared to flat products. However, the power business remains challenging and the company is considering strategic options to reduce debt in this business. The outlook for power business depends on the resolution of stressed assets and the completion of pending transmission projects.
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