JSPL records Rs. 2,584 crore in second quarter consolidated net profit vs. Rs. 897 crore last year; steel giant cuts net debt
Despite sluggish domestic demand due to the ongoing monsoons in the country, JSPL recorded robust sales and production growth in T2FY22. JSPL’s sales volume jumped 32% quarter-on-quarter and 10% year-on-year to a record 2.13 million tonnes in the quarter. The second quarter of fiscal 22 also marked the first time the steel giant’s steel sales crossed 2 million tonnes in quarterly volumes. The company continued to benefit from dynamic export markets, as the share of exports in overall volumes increased to over 40% in 2TFY22, compared to 34% in Q1FY22 (38% in Q2FY21).
The JSPL said exports have become a key sales channel for the company, especially during times of sluggish domestic demand.
The first half of fiscal 22 also highlighted the company’s operational flexibility under challenging market conditions, helping the company to show strong 12% year-over-year production growth and sales growth. by 7% year-on-year. The resilient operational performance in 1HFY22 and the anticipated resumption of domestic construction activities in 2H gives us the confidence to meet our annual production target of 8.0 to 8.5 million tonnes.
Also read: JSPL declared preferred bidder for Kasia iron ore mine by Odisha government
JSPL recently received an additional Consent to Operate (CTO) of 1 MTPA for the Angul blast furnace (CTO of 4.25 mtpa against the current 3.2 mtpa) bringing our capacity to 9.6 MTPA.
JSPL has been declared as the preferred bidder for Kasia Iron Ore Mine in Odisha. The Kasia mine has an important geological resource of 278 million tonnes of iron ore and has an average Fe content of approx. 62.5%. Kasia is an operational mine with an environmental clearance (CE) of 7.5 MTPA.
The mine is only 17 km from JSPL’s Barbil pelletizing plant. Kasia iron ore will greatly enhance the safety of JSPL raw materials; especially since the company is steadily progressing with its plans to increase its pellet capacity to 21 mtpa (up from 9 mtpa now) by FY24 and its steel capacity to ~ 16 mtpa (up from 9, 6 mtpa) by FY25. The company is also working on the establishment of a slurry pipeline between Barbil and Angul (approximately 200 km), which will not only help reduce logistics costs, but also reduce carbon and dust emissions associated with transportation. of raw materials by road. JSPL remains committed to continuously improving its energy performance with a clear goal of reducing our carbon emissions below 2tCO2 / TCS by 2030 (2 tonnes of carbon dioxide / tonne of crude steel).
Higher volumes coupled with continued upward momentum in steel prices in fiscal year 2QFY22 resulted in an increase in own-source net income to INR 13,261 Cr. However, this was partially offset by the drop in pellet sales (due to the increase in internal consumption) and the drop in pellet production. Better steel volumes and outputs resulted in a stand-alone EBITDA of INR 4,519 Cr for the quarter under review.
2QFY22 continued to witness a sharp increase in input costs, the impact of which was compounded by the depletion of low cost iron ore stocks at 1QFY22. While coking coal prices had risen sharply during the quarter, the impact was considerably smaller as the company had already booked equipment at lower prices for the quarter. The upward price trend for coking coal (Premium hard coking coal) continued on October 21, exceeding for the first time US $ 400 / t. Rising coking coal prices are likely to impact margins in the future. However, additional supply from WCL’s Russel Vale mine in Australia and lower iron ore prices should help contain margin squeeze from higher coking coal prices.
Strong operating cash flow, improved working capital, lower finance costs and lower capital spending all contributed to continued deleveraging in 2TFY22. Consolidated net debt decreased further to 11,164 Cr INR in fiscal year 22 (compared to 15,227 Cr INR in June 2021). For the reported quarter, financial expenses decreased 31% year-on-year in 2QFY22 and 32% year-on-year in 1HFY22. JSPL’s emphasis on strengthening its balance sheet resulted in a decrease in its net debt of approx. 35 350 Cr from a peak of c. 46,500 Cr in FY16. The completion of the divestment of Jindal Power Limited (JPL) (recorded as an asset held for sale) will result in a further decrease in net debt of INR 3,015 Cr, bringing JSPL closer to its vision of becoming
a company with no net debt by FY23 – a rare feat in the steel industry. The divestiture received strong support from shareholders approving the transaction at the EGM on September 3, 2021. The company is currently in the process of obtaining the relevant approvals from JSPL as well as JPL’s lenders and expects to what the assignment ends in fiscal year 22 itself.
Standalone JSPL performance
In FY2QFY22, JSPL Standalone recorded the highest ever steel sales (including pig iron) of 2.13 million tonnes (up 32% qoq). Sales volumes during the quarter exceeded production by 1.93 million tonnes, resulting in a sequential decline in inventories. The Company’s inventory levels have
normalized in 2QFY22 compared to the higher levels observed in 1Q. The increase in internal consumption also led to a drop in external sales of pellets to 0.20 million tonnes (down 49% quarter on quarter).
Higher volumes and improved steel prices led JSPL to record gross revenues of INR 14,550 Cr. However, the sharp increase in iron ore costs due to low-priced inventory depletion, higher coking coal costs (including associated transportation costs) and lower pellet sales resulted in a EBITDA declared at INR 4,519 Cr. Strong operating profit and falling finance costs all helped JSPL to post profit after tax (PAT) of INR Cr 2,711 (up 2% QoQ).
a) Mozambique: The Chirodzi mine produced 954 KT of ROM (up 9% year-on-year) in fiscal year 2QFY22. Operations in Mozambique reported FY22 second quarter EBITDA of US $ 17.2 million (up 417% quarter-on-quarter) due to higher coking coal prices.
b) South Africa: the Kiepersol mine in South Africa produced 181 KT of ROM (up 22% QoQ). The mine reported EBITDA of US $ 1.8 million for the quarter on improving coal prices.
c) Australia: The Russell Vale mine began production after receiving the final green light from regulatory authorities. JSPL is expected to receive the first shipment during the current month (November 2021). The Wongawilli mine continues to be the subject of care and maintenance as WCL (Wollongong Coal Limited) continues to work to obtain additional approval for the restart of the mine.
JSPL Consolidated Performance
The continued exemplary performance of all companies, including overseas mines, has contributed to JSPL reporting record consolidated gross sales of 14,902 Cr INR and consolidated EBITDA of 4,594 Cr INR. Higher operating profit and lower financial costs led to an increase in the consolidated PAT to INR 2,584 Cr (up 3% QoQ). Net debt to EBITDA (Trailing) for continuing operations at the end of
quarter ending September 21 was 0.62x (compared to 0.96x on June 21).
India recently passed the 100 crore vaccination milestone with over 75% of the eligible population taking the first dose. Steadily ramping up vaccination and easing COVID-related restrictions will likely help broaden the recovery, and external demand conditions remain favorable. After remaining moderate in 1HFY22, construction and infrastructure activities are expected to recover strongly in 2HFY22 as a period of strong seasonal demand sets in. This bodes well for JSPL with two-thirds of its product portfolio largely aimed at the Indian construction and infrastructure sector.
Inspired by falling prices for iron ore transported by sea, domestic iron ore prices have also fallen in the past three months. This could help the company’s margins in the future with three quarters of this key raw material coming from third parties at this point. The start of operations at the Kasia mine by the end of 3QFY22 as well as the operating Tensa mine are expected to provide more than 70% iron ore safety for the Company’s steel operations. The national steel industry, however, continues to face the sharp rise in the price of coking coal. Premium coking coal has increased 180% so far in FY 22 and is currently trading at levels close to USD 400 / t. However, taking over our Russel Vale mine in Australia will provide some relief from rising coking coal costs, with the first shipment expected on November 21.