JSP 1QFY23 Consolidated Gross Revenues fell 8% Q-o-Q to INR 14,738Cr

JSP 1QFY23 Consolidated Gross Revenues fell 8% Q-o-Q to INR 14,738Cr (+26% Y-o-Y), driven by lower steel and pellet sales partially offset by higher realisations. Adjusted EBITDA of INR 2,993Cr** was higher by 3% Q-o-Q but declined 32% Y-o-Y due to rise in input costs and unfavourable base in the prior year (low cost iron ore inventory available in Q1FY22). Q1FY23 Adjusted Profit after tax declined by 23% Y-o-Y (+5% Q-o-Q) to INR 1,929Cr on the back of lower operating profit, partially offset by lower finance costs.

Funds from JPL divestment has further strengthened JSP’s balance sheet with Consolidated Net Debt declining further by INR 1,149Cr in 1QFY23 to end the quarter at INR7,727Cr. Net Debt to EBITDA has improved to 0.54x (from 0.57x in the previous quarter).

India’s Steel production and demand in Q1FY23 were sequentially lower due to sluggish domestic demand and lower exports. The Country reported Crude Steel production of 31.4mt (2% lower sequentially). India’s apparent Steel demand of 27.7mt also declined by 4% Q-o-Q but increased by 11% Y-o-Y due to benign base (Q1FY22 was impacted by COVID induced slowdown). India’s finished steel exports were negatively impacted by export duty imposed in the month of May 2022, resulting in a sharp fall of 38% Y-o-Y to 2.2mt in Q1FY23.

Global steel Industry continues to face severe margin pressures due to precipitous fall in steel prices across geographies. After hitting a peak in April 2022, India export Hot Rolled Coil (HRC) have witnessed a sharp fall with spot prices down around 40% from the peak. Domestic HRC and rebar prices have followed export prices and are lower by 20- 25% in the past 3 months. Challenges for the steel industry were further compounded by rising input costs as coking coal prices remained elevated for majority of Q1FY23. While the industry continues to face lower steel prices, benefit of lower coking coal should reflect after a lag of 45-60 days.

Confluence of COVID induced slowdown in China, high inflation and ongoing conflict in Europe has posed significant headwinds for the steel sector. Global Crude steel production has declined by 6.3% in the first five months of 2022, with steel production contracting in all major steel producing regions on a Y-o-Y basis, with the exception of India (+6.5% Y-o-Y). While World Steel Association (WSA) forecasts muted global steel demand in 2022 (+0.4% Y-o-Y), India’s steel demand growth is expected to be the highest among top steel consuming nations at 7.5%, boosted by higher spends on infrastructure and gradual revival of the automotive sector. Over the long term, India’s Ministry of Steel expects country’s steel production to double from 120 million tonnes to 240 million tonnes in the next eight years, implying a CAGR (Compounded Annual Growth Rate) of 9%.