News Analysis

Export realisations, value-added products drive Q1 earnings of JSW Steel

Satya Sontanam | Updated on July 26, 2021

Investors need to be cautious, though, given the run-up in the stock price as well as valuation

BL Research Bureau

An improvement in realisations and a higher proportion of value-added steel sales helped JSW Steel post impressive growth in realisations and profit in the quarter ended June 2021. The company announced its results at market close on Friday, July 23.

On the back of slightly weaker domestic economic activity in the quarter due to the emergence of the second wave of Covid-19, JSW Steel turned its focus again to exports. Unlike earlier, the realisations from the export markets were good on the back of robust demand aided by the global economic recovery.

Since Y-o-Y comparison of the Q1FY22 earnings is not appropriate due to the impact of Covid-19 on Q1FY21, we look at sequential improvement in the company’s operating performance.

Operating performance

JSW Steel standalone operations reported crude steel production of 4.1 million tonnes in Q1FY21, a marginal decline of two per cent over Q4FY21 due to diversion of liquid oxygen for medical purposes during the second wave of Covid-19.

This also impacted the sales for the quarter, which stood at 3.61 million tonnes, lower by 11 per cent QoQ. Due to the weaker domestic demand, the company focused on the export market, which increased by 9 per cent q-o-q boosted by robust demand on the back of the ongoing recovery in the global economy.

Most of the offshore subsidiaries too had decent growth in the operational performance compared to the previous quarter as well as last year.

Modest sales volumes and buoyant steel prices aided the company to report the highest ever consolidated revenue Rs 28,902 crore, an increase of 7.3 per cent QoQ.

As per the data from SteelMint, the domestic HRC steel prices moved up to Rs 67,500 per tonne at the end of June 2021 from Rs 55,300 per tonne in March 2021. This is against Rs 38,250 per tonne in March- April 2020.

The company has also reported the highest-ever operating profit of about Rs 10,274 crore, up 22 per cent q-o-q. The EBITDA margin in the quarter stood at 35.5 per cent as against 31.3 per cent in the Q4 quarter of FY21.

While higher steel prices aided the incremental margins, a favourable mix of sales too, was another tailwind.

During the quarter, the company witnessed the highest ever share of value-added products at 61 per cent (vs. 59% in Q4FY21 and 38% in Q1FY21), given increased domestic sales to automotive, solar and appliance segments. This was also boosted by robust export demand for coated products.

Higher realisations during the quarter lowered the impact of higher iron ore and coking coal prices as well as higher fuel expenses to the company, to an extent.

Resultantly, the consolidated net profit of the company in Q1 FY22 was Rs 5,900 crores - which is the highest ever – up 40 per cent q-o-q.

Though the net debt level increased in absolute terms from Rs 52,615 crore by the end of March 2021 to Rs 54,989 by June 2021, the net gearing ratios - Net Debt to Equity stood at 1.04x at the end of the quarter (as against 1.14x at the end of Q4 FY2021) and Net Debt to EBITDA stood at 1.89x (as against 2.61x at the end of Q4 FY2021).


The stock of JSW Steel has more than quadrupled since its lows in April 2020. The buoyancy is in line with other steel stocks. Favourable global conditions resulting from capacity cut by Chinese steel plants, increasing demand for the metal globally & domestically and loose monetary policy across the globe that are expected to increase infrastructure spending have been driving commodity prices.

With expected infra spending by the government to kick in growth in the economy, the outlook for domestic steel demand is sanguine. Further, China’s announcement to cut the export rebates on 126 steel products will help Indian steel players to cater to the demand in the export market. Also, with JSW Steel’s capacity expansion of Dolvi plant by five million tonnes per annum (mtpa) –– that would be operationalised by September 2021–– and addition of new capacity from recently acquired Bhushan Power and Steel (BPS), the company is well-placed to cater to the expected growth in steel demand.

Long-term investors in the stock need to be cautious, though. The EV/EBITDA of the company stands at 14.5 times, compared to the three year average of 10.6 times (as per Bloomberg). Headwinds to the economic revival and fall in international steel prices are key risks which investors should watch out for.

Published on July 26, 2021

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