Despite adverse market conditions due to second wave of COVID-19 and ensuing lockdowns, JSPL has been able to post resilient set of numbers in 1QFY22. The company reported a record first quarter steel production of 2.01 million tonnes.
While domestic demand was subdued during the quarter, buoyant export markets continued to provide support with exports accounting for 34% in 1QFY22. Share of exports would have been higher in the absence of logistical challenges posed by unfavorable weather leading to congestion at ports.
Volume growth coupled with upward momentum in steel prices in 1QFY22 resulted in standalone net revenues rising by 65% YoY to INR 10,385 cr. However, during the quarter long steel prices were relatively subdued compared to flat steel prices, which were also boosted by buoyant export markets. The quarter also witnessed sharp rise in input costs, impact of which was compounded by exhaustion of low cost iron ore inventory. Although standalone EBITDA of INR 4,524 cr was up YoY, it declined 7% QoQ, due to drop in sales volume and lower benefit accruing from iron ore compared to prior quarter.
Continued cash generation, declining finance cost, lower capex and debt associated with JPL moving out of JSPL’s consolidated books have all contributed to continued deleveraging in 1QFY22. Consolidated net debt has declined further to INR 15,227 cr in 1QFY22 (from INR 22,146 cr in March 2021). Conclusion of JPL divestment (now accounted as asset held for sale) will result in net debt declining further, taking JSPL a step closer to its vision of becoming a net debt free company – a rare feat in the steel sector. Additionally the divestment would meaningfully enhance JSPL on ESG metrics, by reducing its carbon footprint by more than half (at full utilization).
JSPL standalone performance
During 1QFY22, JSPL standalone reported steel production (incl. pig iron) of 2.01 million tonnes (up 20% YoY), a record first quarter production. While the domestic demand was severely impacted by the second wave of COVID-19, lucrative export markets aided company’s effort in improving sales compared to previous year (1.61mt, +3% YoY). Share of exports increased to 34% in 1QFY22 compared to 27% in the prior quarter.
Higher sales volumes and uptick in the steel prices resulted in revenues rising by 65% YoY to INR 10,385 cr. EBITDA also surged to INR 4,524 cr., partially offset by higher costs. Strong operating profit and declining finance costs have resulted in JSPL standalone posting a quarterly profit of INR 2,661 cr.
Pellet production in 1QFY22 increased to 2.16 million tonne (up 6% QoQ). External sales of pellets also increased to 0.40 million tonnes (up 39% QoQ) due to higher production of pellets as steel production was broadly stable QoQ.
a) Mozambique: Chirodzi mine produced 938 KT ROM (up 42% YoY) in 1QFY22. The Mozambique operations continued to ramp up production. Mozambique operations reported EBITDA at US$3.3mn for 1QFY22.
b) South Africa: During 1QFY22, Kiepersol mine in South Africa produced 148 KT ROM (up 10% QoQ). The mine reported EBITDA of US$ 0.3mn for the quarter.
c) Australia: Russell Vale mine is now ready to start production and awaiting final go ahead from the regulatory authorities. Wongawilli colliery continues to remain under care & maintenance.
JSPL consolidated performance
The quarter marked exemplary performance by all businesses including steel and overseas mines and minerals businesses, which resulted in JSPL reporting consolidated net revenues of INR 10,610 cr (up 63% YoY) and EBITDA of INR 4,539 cr. Aided by the strong operating performance amidst challenging market conditions, JSPL reported a consolidated PAT (continuing operations) of INR 2,516 cr. Company’s singular focus on deleveraging has resulted in consolidated net debt reducing to INR 15,227 cr [Ex-JPL]. The balance sheet continues to strengthen further with net debt to EBITDA improving to 0.96 (from 1.53x in the previous quarter). Acknowledging superior balance sheet and bright outlook for the steel sector CARE has upgraded JSPL’s long term borrowing rating to CARE A(+) with stable outlook from CARE A(-) with stable outlook. JPL divestment should significantly boost JSPL’s balance sheet strength and improve the return ratios further.