Putting up a stellar performance, JSW Steel reported net profit of ₹1,109 crore in the latest June quarter, a several-fold jump from the ₹21 crore in the comparable period, last fiscal. Also, operating profit grew 92 per cent (year-on-year) to ₹3,269 crore during this period.

Following the results release on Wednesday, the stock ended the day nearly 5 per cent up. The stock has surged surged 64 per cent since the start of the year. But, it is trading 3 per cent lower today. Expectations of a less-than-spectacular show in the ongoing September quarter may have dampened sentiment.

Better realisations

Higher volume of steel exports (39 per cent growth year-on-year) that also fetched better prices, both compared to domestic sales and to that in the past boosted revenue in the June 2016 quarter. Volumes sold in the domestic market, however remained virtually unchanged when compared with the June 2015 quarter. While imposition of minimum import prices on a wide range of steel products being imported into India has provided protection in the domestic market, consumption grew a tepid 0.4 per cent in the June quarter.

Exports accounted for 19 per cent of JSW Steel’s sales in the June 2016 quarter, up from 14 per cent, a year-ago. A recovery in global steel prices in March, April and May (partly), assisted by a pick-up in the Chinese property market, boosted realisations. This helped the company post 2 per cent rise in consolidated revenue to ₹12,886 crore in the June 2016 quarter. While the increase appears mild, it is significant given that the company has reported six successive quarters of falling (year-on-year) revenue since the December 2014 quarter.

Also, lower prices of key steel-making raw materials, iron ore and coking coal helped bring down raw material cost. But, this is not something new. The company, as have other steel makers, been benefiting on the input front due to the global commodity downturn. Accordingly, the company’s standalone operating profit (EBITDA) rose 85 per cent to ₹3,098 crore in the June 2016 quarter. It had reported five successive quarters of declining profit until the December 2015 quarter.

What’s ahead?

While the quarter gone by has been good, the September quarter may not be quite so. Demand, particularly for long steel products used in construction, is expected to be sluggish. This should keep steel prices under pressure. Apart from that, the company expects raw material prices to be higher in this quarter. An expected pick-up in demand from the second half of the current fiscal, should however help.

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