News Analysis

JSW Steel: Revival in domestic steel demand drives profitability

Satya Sontanam | Updated on October 23, 2020 Published on October 23, 2020

JSW Steel had scaled down and suspended operations since March to contain spread of Covid   -  Getty Images/iStockphoto

With domestic steel demand gaining momentum from the lows witnessed in the first quarter of FY’21 on the back of Covid-19, JSW Steel turned its focus from exports to the more profitable domestic sales in the September 2020 quarter.

An improvement in sales realisation and a higher proportion of value-added steel sales, helped JSW Steel post an impressive growth in profit. The company more than tripled its operating profit to Rs 4,414 crore in the September 2020 quarter from the previous quarter.

On recovery mode

Demand for steel in the Indian market almost doubled to 23.63 million tonnes in the September 2020 quarter from 12.23 million tonnes in the June 2020 quarter.

Reflecting this turnaround in demand, domestic HRC prices rose by around Rs 5,500 to Rs 41,250 per tonne (SteelMint data) from July to September-end, in line with the movement in global steel prices. Global prices have been moving northwards on the back of renewed demand for the metal — especially from China — and the rise in the prices of iron ore, a key raw material.

Helped by the recovery in steel demand, JSW Steel’s India sales volumes (standalone operations) almost doubled to 4.12 million tonnes in Q2FY20 from 2.8 million tonnes in the previous quarter. Also, the average sales realisation during the quarter went up by 11 per cent to Rs 40,769 per tonne.

Improvement in realisations was also triggered by the rise in the share of the high-margin value added products in overall sales from 38 per cent in Q1FY21 to 51 per cent in Q2FY21. According to the company, this was driven by strong automotive sales and increased offtake from consumer packaging, appliances and solar segment.

Better realisations and sustained cost of production (rise in iron ore prices was offset by the fall in coking coal prices) helped the company deliver higher operating profit per tonne of steel of Rs 10,140 in Q2 FY21, almost twice as much as that recorded in Q1 FY21. This also reflects in the company’s higher operating profit margin of 25 per cent in the second quarter, up from 14 per cent in the previous quarter.

Year-on-year growth as well

The consolidated performance of the company when compared to the corresponding period in the previous year is also impressive. Note that the revenue from the standalone Indian operations account for close to 90 per cent of the company’s consolidated revenue.

The consolidated revenue and profit (before tax) of the company for the quarter ended September 2020 was Rs 19,264 crore (up 10 per cent y-o-y) and Rs 4,414 crore (up 62 per cent y-o-y) respectively. This was on the back of higher sales volumes (14 per cent up y-o-y) and a favourable product mix which included a higher share of value-added products such as automotive sales.

Further, the performance of the overseas subsidiaries improved significantly as the operating loss in the September quarter this year reduced to Rs 5.87 crore from around Rs 50 crore. This could have been aided by the rise in steel prices.

The net profit, however, was lower at Rs 1,595 crore in the September 2020 quarter as against Rs 2,536 crore in the previous year due to the tax credit of Rs 1,848 crore earlier.

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Published on October 23, 2020
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