Jindal Steel & Power (JSPL) is seeing the tide turning in its favour. While it announced the deal to sell its 1,000-Mw power assets, the March quarter performance, too, was helped by improving prospects in the steel segment.
Domestic steel prices have improved Rs 5,000 a tonne by the end of the quarter from January lows following implementation of MIP (minimum import price). With imports getting curtailed, JSPL’s consolidated sales (including Oman) at 1.44 million tonnes (mt) were up 44 per cent sequentially. With some improvement in realisations (more benefits will flow in), iron and steel sales (Rs 4,020 crore) increased 22 per cent sequentially and 5.2 per cent year-on-year (y-o-y).
The segment posted a profit of Rs 445 crore against Rs 111 crore loss in the previous quarter and a profit of Rs 381 crore a year ago. This boosted JSPL’s overall performance as the power segment revenues remained flat and the segment reported a loss of Rs 9.5 crore at the operating level. JSPL attributed the weak performance to lower generation and realisations in the March quarter.
Thus, consolidated revenues at Rs 4,874 crore grew 11.7 per cent sequentially and 6.9 per cent y-o-y and earnings before interest, taxes, depreciation, and amortisation (Ebitda) at Rs 896 crore were up 62.9 per cent sequentially and nine per cent y-o-y. The latter was not sufficient to meet interest expenses leading to a net loss of Rs 371 crore for the quarter. It was lower than losses of Rs 573 crore in the previous quarter and Rs 519 crore a year ago.
Looking at the huge debt and to meet payment obligations, JSPL is looking to monetise 3,400 Mw of total 5,100-Mw power capacities; of this, it is selling 1,000 Mw to JSW Energy. The deal will fetch Rs 4,000 crore besides Rs 2,500 crore if JSPL is able to patch power purchase pacts. The replacement cost of such assets is Rs 6,000 crore, but given under-utilisation, analysts at Macquarie feel JSPL is better off getting the liquidity now and retaining an option for more payments if things recover. At Rs 4,000 crore, the deal would be earnings per share-accretive by Rs 1 a share, they add.
A favourable verdict for JSPL allowing movement of iron ore can add Rs 1,300 crore to its operating profit over FY17 and FY18, say analysts.
Credit Suisse, assuming coverage on JSPL, said asset monetisation remains key as debt is 88 per cent of enterprise value. Incorporating higher prices/volumes, FY17/18 Ebitda moves up 2-14 per cent. It expects JSPL to report a net profit in FY18.
Source: Business Standard