JSW Steel's sales for the quarter ended March 2012 received a boost from the 33 per cent surge in steel volumes registered by the standalone operations.

Coupled with a mild increase in steel prices, the company posted 41 per cent increase in consolidated net sales. This surge was on account of improved utilisation rates at capacity commissioned in mid-2011 as the company received sufficient quantities of iron ore from e-auctions to keep their furnaces burning.

Operating expenses rose quite sharply by 50 per cent. Expenses on captive power plants soared by 66 per cent. Raw material costs on iron ore and metallurgical coal rose by around 60 per cent.

The company paid out more cash for iron ore purchased at State-sanctioned auctions of low grade ore.

A weaker rupee also made imported metallurgical coal more expensive. Operating margins slipped by four percentage points to 13 per cent. On a net level, excluding a Rs 200-crore exceptional gain the company registered on account of its forex exposure, the company's consolidated net profits would have declined by 28 per cent to Rs 569 crore.

JSW Ispat operations

The forex gain is a result of the relative strength of the rupee during the first quarter of this year.

The company's subsidiary JSW Ispat's operations remain a drag on the consolidated group. JSW Ispat had announced a net loss during the quarter of Rs 140 crore compared with a profit of Rs 70 crore during the same quarter a year ago.

However, a few red flags have emerged over the last week. The sharp depreciation of the rupee is likely to make the company's imports for upcoming quarters far more expensive.

Iron ore supplies available through auctions from NMDC are also thinning.

Having to source from other States can result in higher transport bill. For the company's utilisation rates to remain at the 80 per cent rates registered during the quarter, timely iron ore supply will be needed. There is lack of visibility on this front until mining resumes in Karnataka.