Falling prices roil JSW Steel, net income plunges 57%

Sajjan Jindal-led JSW Steel on Friday reported a steep 56.90 percent decline in consolidated net for the three months to June at Rs 1,008 crore, roiled by lower realisation and the resultant inventory losses. Falling prices has led to a 3 percent fall in revenue to Rs 19,953 crore during the quarter, the company said, adding, however, expenses rose to Rs 18,164 crore from Rs 17,206 crore, leading to the higher hit on the bottomline.

"Both demand and prices have fallen in the US by almost 25 percent in the quarter and 30 percent in the first half. Similarly, prices in the Europe, China and India have also dropped. "At the same time, iron ore price jumped 38 percent in the quarter and a higher 71 percent in the first half. Another hit came from exports due to falling prices, though from a volume perspective, it inched up a tad," joint managing director and group chief financial officer Seshagiri Rao told reporters here.

He further said the company's overseas acquisitions in the US and Italy are still in ramp-up stage and will take time to turnaround and help boost bottomline at the group level. He said due to subdued domestic demand, the company has strategically focused on exports during the quarter, which increased 34 percent to 0.62 million tonne, accounting for 17 percent of total sales.

But at a consolidated level, sales declined to 3.66 million tonne, down 3 percent. "Domestic demand was impacted by weaker activity levels driven by a softer public investment spend on account of general elections, lack of credit availability, and a weaker sentiment as reflected in slow automotive and consumer durables momentum. This subdued demand led to lower volume and accumulation of inventory across the industry," Rao said.

Its crude steel production rose 3 percent to 4.24 million tonne, while saleable steel output declined 3.75 percent to 3.75 million tonne, primarily due to weaker domestic demand and lack of credit availability. "We, however, managed to reduce fuel consumption and iron ore imports as we used more iron ore from our captive mines. Also, we substituted external purchases of coke by ramping up new captive coke oven batteries at Dolvi," he said.

Rao, however, hoped public sector investments to revive, which had declined due to the general elections. He also maintained the full year's guidance of 16.95 million tonne production and 16 million tonne of sales. "Though government spends have slowed, structurally it is likely to expand and gain momentum given the government's thrust on infrastructure," he said.

He, however, noted that weaker automotive and consumer durables sales in recent months is a concern. "Urgent measures to ensure timely availability of credit will be key to regain the momentum and sentiment and fuel growth," Rao added. JSW Steel is in the middle of a five-year expansion plan of Rs 48,715 crore to ramp up capacity to 24 million tonne by FY2022 from 18 million tonne now..