On the back of a relief rally in the stock market last week, the Nifty Metal index gained 12.7 per cent. The stock of Jindal Steel & Power (JSPL), however, delivered a higher weekly return of about 44 per cent.

The spurt in the JSPL stock could be because of record production and sales numbers that the company had announced for the year ended March 2020. The consolidated production and sales of the company in FY20 grew 12 per cent and 10 per cent to 8.17 million tonnes and 7.92 million tonnes, respectively.

However, performance of domestic operations in the quarter ended March 2020 was muted, with growth in the production and sales volumes at just about 2 per cent and -2.8 per cent, respectively.

While the revenue for the quarter will be impacted by lower sales, it needs to be seen if the rise in steel prices (about ₹2,500 per tonne), in the said quarter, offsets some of the slack in volumes.

The spike in share price was also attributed to the recent release of the company’s pledged shares (held by promoters) to an extent of about 8.84 per cent of the total number of shares. According to reports, promoter companies — including Opelina Sustainable Services, OPJ Trading and Gagan Infra Energy — have repaid loans of around ₹391 crore. Post this, debt at the promoter level stands at about ₹356 crore (raised by pledging JSPL’s shares).

Generally, companies with a high proportion of promoter pledging are viewed as risky by the market.

This is because it raises questions about promoters being cash-strapped in their personal capacity or facing debt problems in other group ventures.

This is especially true in a bear market as steep stock price declines can trigger margin calls that set off a downward spiral in a stock.

Thus, the release of pledged shares by the promoters of JSPL lent comfort to the market last week.

Note that the promoters’ shareholding in the company as on December 2019 was 60.4 per cent, out of which 65 per cent was pledged.

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