Jindal Steel announced its results late on Tuesday with a miss on estimates and a slip in indicative timeline for its upcoming capex projects. Considering that volume growth as well as earnings growth assumptions baked in so far have moved further away due to the capex being pushed, the stock lost 7.8 per cent on Wednesday. This apart, the fact that costs could go up in the coming quarter too, could have played spoilsport.
Average steel realisation declined by 10 per cent in the quarter for Jindal Steel after stabilising from the sharp fall in steel prices last year. This decline may have been more than what was anticipated, as the revenue missed the consensus estimates by 2.5 per cent. The EBITDA miss of 6 per cent may have been on account of higher coking coal costs, which were on a declining trend earlier.
The cost of coal is expected to be higher in the third quarter. However, while Jindal’s contribution from its coal mines can ease this cost compared to competition, the decline in steel prices may not get any respite as the excess exports from China to countries across the globe will continue to impact the domestic steel prices.
Jindal Steel has a lot on its capex plate — a coal mine, a slurry pipeline and a couple of blast furnaces, for doubling its capacity. A large chunk of the projects was planned to be completed by Q2FY25. But now, at the time of announcing the Q2FY24 results, the company has pushed the capex by another half year to FY25 end. This apart, the capex has been revised upwards yet again. From an initial ₹18,000 crore capex plan in July’22, it moved up to ₹24,000 crore in July’23, and now stands at ₹31,000 crore . The latest hike has been ascribed to increased scope of the project, project inflation and other changes.
Coal mines in Gare Palma and Utkal have been opened and are expected to ease energy costs and contribute to Jindal Steel becoming self-sufficient — coal supply wise. The pellet plant has commenced operations in October and is expected to add to topline till the additional steel-making capacity becomes operational. The Angul expansion with one blast furnace to be operationalised by Q2FY25 has been moved to Q4FY25 along with other furnaces, causing the primary delay. . The company sales volume hovering around the 2 mt/quarter mark in the last two years and a further delay in expansion hasn’t gone down well with investors.
The stock is trading at 5.2 times FY25 EV/EBITDA after having corrected by 17 per cent last month. We recommended accumulating the stock in bl.portfolio edition on October 7. We reiterate the same for long term investors, as the company progresses to double its steelmaking capacity.