Jindal Steel & Power’s Q4 hit by one-time costs but outlook holds promise

Jindal Steel & Power Ltd (JSPL) registered quarter-on-quarter growth in volume and realization for Q4FY23, however, an expansion at the Ebitda (earnings before interest, tax, depreciation and amortization) level remained elusive due to one-time costs and elevated commodity prices. No wonder JSPL’s shares fell more than 3% in Wednesday’s morning trade on the National Stock Exchange (NSE).

JSPL reported an 8% sequential fall in Ebitda to ₹2,187 crore, hit by an inventory write-down of ₹250 crore. Profitability was also hampered by high iron ore prices. Ebitda margin stood at approximately 16%, reflecting a sequential drop of 312 basis points. JSPL has said the company will remain vigilant with its inventories and fixed assets even though such one-off costs may not persist in the near to medium term.

Going ahead, multiple factors are expected to bolster margin performance. Notably, the recent drop in coking coal costs should prove beneficial for JSPL’s margin. Analysts at JM Financial Institutional Securities highlighted that forthcoming mining clearances should also enhance the margin trajectory. “The company’s coal security is expected to improve post commencement of coal blocks - Utkal C, Utkal B1, B2 and Gare Palma IV/6," added the broking firm in a report on 16 May.

In line with its capital expenditure plans, JSPL does not foresee an increased burden on its balance sheet. “We believe future cash flows would be sufficient to fund the ongoing capex of about ₹15,000 crore spread across FY24E-27E," said analysts at Nuvama Research in a report on 16 May. “We expect JSPL will not breach net debt/Ebitda of 1.5 times even during its down cycle, implying that JSPL may refrain from big acquisitions," added the broking firm. JSPL’s net debt to Ebitda ratio stood at 0.7 times as of end of FY23.

JSPL refrained from providing guidance for FY24 volumes, but anticipates robust demand in the domestic market. The company foresees increased government spending to stimulate demand, which, if realized, would provide a vital uplift to the volume, thus enhancing investor sentiment. Despite these potential growth levers, JSPL shares are down 13% from their 52-week highs of ₹622.75 apiece seen in February.