JSP announces financial results

Industry update

After a weak FY21, India has witnessed a robust recovery in steel production and demand in FY22. India’s crude steel production surged by 18% y/y to a record 120 million t in FY22. India’s steel consumption increased by 11% y/y to 105.4 million t; surpassing the crucial 100 million t level.

Uncertainty caused by rising COVID cases in early January 2022 and logistical challenges due to limited rake availability resulted in domestic demand (29 million t in 4Q FY22) posting a modest decline on a y/y basis. India Steel demand was however still up by 7% q/q in the seasonally strong 4Q FY22. Ongoing geopolitical tensions has resulted in sharp increase in raw material costs for the industry with metallurgical coal prices hitting unprecedented levels of US$700/t in March 2022. Metallurgical coal prices have corrected since but continue to remain at elevated levels of US$500/t. Surging metallurgical coal costs coupled with higher iron ore prices resulted in industry wide margins being impacted. During the quarter, the differential between longs and flat steel prices shrunk. Domestic rebar (primary) is currently trading at a small discount to Hot rolled coil (HRC) prices as compared to peak discount of approximately Rs. 16 000 crore/t in July 2021.

JPL divestment concluded

The company has divested Jindal Power (JPL) on 30 May 2022, receiving Rs 3015 crore in total from Worldone Private Ltd (acquirer) as part of the transaction. The divestment has further boosted company’s balance sheet strength; taking JSP a step closer to its vision of becoming a net debt free company in FY23 – a rare feat for the steel sector, historically associated with high leverage and stretched balance sheet. The divestment will further boost JSP’s ESG scores with significant reduction in its carbon footprint associated with thermal power plants.

Acquisition of coal blocks

JSP has won four coal blocks in the 13th and 14th tranche of auctions, namely – Utkal C, Utkal B1, Utkal B2 and Gare Palma IV/6. These blocks have cumulative reserves of ~500 million t and clearance to produce up to 15.1 million tpy. Once operational, these mines will help JSP meet 100% its thermal coal requirement for the current as well as expanded steel capacity (~16 million tpy by FY25). The company is planning to start production from these mines in the next 12 – 15 months. These mines will help the company to significantly enhance its fuel security and also aid in lowering costs.

JSPL standalone performance

4Q FY22 performance

JSPL India operations reported the highest ever steel production of 2.11 million t (up 2% y/y) and sales of 2.08 million t (up 9% y/y) in 4Q FY22. Sales were also aided by improved demand from export markets with export share rising to 29% in 4Q FY22 (vs 23% in 3Q FY22).

Standalone operations reported gross revenues of Rs. 15 609 crore in 4Q FY22 (+33% y/y) on the back of higher steel volumes and steel prices, partially offset by lower pellet sales. However, EBITDA declined by 11% q/q to Rs 2827 crore due to surging metallurgical coal costs. Profit after tax (PAT) declined by 30% q/q to Rs 1198 crore due to lower operating profit and Rs. 324 crore one-off impact (due to write-off taken for mining investment and assets and expenses related to water charges for prior year and relinquishment of long term power agreement), partially offset by 9% q/q fall in interest expense.

Pellet production of 1.98 million t posted a modest decline of 2% y/y. External sales of 0.14 million t was lower by 53% y/y due to higher internal consumption.

FY22 performance

Notwithstanding massive disruption caused by the pandemic in early FY22, unfavourable weather and several logistical challenges, JSP’s wide product profile and geographical diversification stood the company in good stead. For the full year, standalone production (including pig iron) increased by 7% y/y to hit a record for the fifth consecutive year (8.01 million t vs 7.51 million t in FY21). Standalone steel (including pig iron) sales also reached the highest ever level of 7.64 million t (up 5% y/y). Buoyant export markets continued to support JSP’s sales efforts with volumes maintained at 2.5 million t. Exports share declined marginally to 33% in FY22 compared to 35% in FY21.

Improved steel realisations and higher sales resulted in gross revenues rising by 49% y/y to Rs 55 264 crore/standalone EBITDA increased by 15% y/y to a record Rs. 15 037 crore. EBITDA growth is noteworthy as the year saw a steep increase in metallurgical coal prices and limited benefit accruing due to low cost iron ore inventory as compared to FY21. Record operating profit and declining interest expense contributed in JSPL net profit reaching the highest ever level of Rs. 8283 crore in FY22.

The pellet production of 7.76 million t in FY22 was broadly in line with prior year. However, higher crude steel production resulted in two-third fall in external sales (0.75 million t vs 2.25 million t in FY21).

Global ventures

Mozambique

Chirodzi mine produced 1.04 million t run of mine (ROM) (+29% y/y) in 4Q FY22. Metallurgical coal sales of 157 000 t were higher by 22% y/y and slightly better compared to 3Q FY22. The Mozambique operations continued to ramp up production this year and ended FY22 at 4.1 million t ROM (compared to 3.2 million t in FY21). Metallurgical coal sales in FY22 also improved in line with production to 70 000 t (58 100 t in FY21). 4Q FY22 EBITDA of US$12.7 million, although sharply up y/y, was negatively impacted by approximately US$14 million FX loss. FY22 saw Mozambique operations turning profitable with the mine reporting EBITDA of US$57.2 million and PAT of US$22 million.

South Africa

During 4Q FY22, Kiepersol mine in South Africa produced 130 000 t ROM (-3% y/y). The mine reported sales of 95 000 t in 4Q FY22 and 407 000 t in FY22 (vs 490 000 t in FY21). Better realisations resulted in EBITDA increasing to US$5.3 million for the quarter and US$10.4 million for the year (vs US$ 6.1 million in FY21).

Australia

Post resumption of operations at Russell Vale in the prior quarter, the mine continued to ramp up during 4Q FY22. Russel Vale production increased to 125 400 t compared to 86 100 t in 3Q FY22. However, issues with blending and dispatch resulted in sales declining to 73 000 t (95 000 t in 3Q). Impact of lower sales was only partially offset by higher metallurgical coal prices as Wollongong Coal Ltd (WCL) EBITDA declined by 11% q/q to US$8.3 million (US$9.3 million in 3Q FY22). Ramp up of Russel vale mine in the 2H FY22 has resulted in Australian operations ending FY22 positively with WCL reporting EBITDA of US$13.7 million compared to a loss of US$9.6 million in the prior year. Wongawilli colliery continues to remain under care and maintenance.

Outlook

COVID induced slowdown in China, ongoing conflict in Europe and higher inflation is likely to pose challenges for the global steel demand in the near term. This coupled with continued logistical challenges within the country due to limited rake availability and surging metallurgical coal prices is likely to further increase headwinds for the domestic steel sector. However, structural changes to reduce carbon emissions globally, China’s policy to curb steel exports and increased costs due to ongoing geopolitical tensions are likely to provide continued support to steel prices in the long term, in our view.

JSP recorded a resilient performance in FY22 as the company was able to meet its production guidance of 8 million t and surpassed the 50,15,15 target (Rs. 50 000 corer of revenue, Rs. 15 000 crore EBITDA and less than Rs. 15 000 crore net debt). Notwithstanding near term challenges, the company will aim for 8.5 – 9 million t in FY23.

Read the article online at: https://www.worldcoal.com/coal/01062022/jsp-announces-financial-results/