January 29 2016, 15.48 PM IST || Pocket News Alert
Mumbai, India: JSW Steel Limited (“JSW Steel” or the “Company”) today reported its results for
the Third Quarter (“3Q FY2016” or the “Quarter”) and the Nine month ended December 31,
2015 (“9M FY2016” or the “9 Month”).
Key highlights of the quarter:
Standalone Performance:
Crude Steel production: 2.70 million tonnes
Saleable Steel sales: 2.55 million tones.
Gross Turnover: `8,076 crores
Operating EBITDA: `878 crores
Consolidated Performance:
Gross Turnover: `9,562 crores
Operating EBITDA: `892 crores
Operational Performance:
The current quarter was marked by planned shutdowns of Blast Furnaces towards
relining/modification and capacity expansion at all three upstream steel making locations viz.
Vijayanagar, Dolvi and Salem units of the Company. As a result, the Company reported Crude
Steel production for the quarter of 2.70 million tonnes while Saleable Steel sales volume stood
at 2.55 million tonnes. On completion of these low cost and returns accretive projects, the
installed capacity of the Company will increase by about 25% from 14.3 million tonnes per
annum to 18 million tonnes per annum.
Despite lower volumes due to planned shutdowns, the Company strategically reduced share of
exports to 12% of total sales (from 29% in the same period last year), and domestic sales
volumes grew 8% YoY during the quarter. Increase in Retail sales (which grew 82% YoY) enabled
by strategic expansion of distribution footprint and influencer engagement programmes helped
achieve this. More importantly, the product mix was enriched with value added products
accounting for 36% of total sales during the quarter.
The details of production and sales volumes are as under:
Standalone Financial Performance:
JSW Steel recorded Gross Turnover and Net Sales for the quarter of `8,076 crores and `7,207
crores respectively. Topline was impacted by both lower volumes (due to planned shutdowns) as
well as lower steel pricing, which, in turn, was exacerbated by a surge in imports at predatory
prices. While the company benefited to some extent on account of lower raw material costs, the
savings from this were offset to some extent by the negative operating leverage due to planned
shutdowns. Consequently, Operating EBITDA came in at `878 crores with EBITDA margin of
12.1%.
Provision for diminution in value of investments and loans and advances
Global commodity prices have been on a downward spiral and seen a sharp correction on the
back of weakening demand and supply glut conditions. The seaborne prices of iron ore and coal
have dropped by 40% and 31% respectively during CY2015. JSW Steel’s subsidiary, JSW Steel
(USA) Inc’s operations of the Plate and Pipe Mill have continued to suffer losses during the last
few years. In view of the lower long-term commodity prices forecasts and continuing losses at
the US plate and pipe mill operation, the Company has made a total provision of ` 5596 crores
for diminution in value of investments, other than temporary, in the value of certain overseas
investments, loans and advances and towards certain guarantees for borrowing by the
subsidiaries which has been disclosed as exceptional items in the results and includes:
` 3436 crore for the quarter in JSW Steel (USA) Inc, a subsidiary company.
` 1156 crore for the quarter in JSW Panama (Holding) Corporation and its subsidiaries.
` 348 crore for the quarter in Periama Holding LLC and its subsidiaries.
` 656 crore for the quarter in JSW Steel (Netherlands) BV.
After providing for these exceptional items towards diminution in value of investments, the net
loss after tax stood at `4,142 crores for the quarter.
Gross Turnover and Net Sales for the 9 month stood at `29,923 crores and `26,841 crores
respectively. The Operating EBITDA for the 9 month was `3,948 crores. The company posted a
Net loss of ` 3,871 crores for the 9 month ended December 2015.
The net gearing stood at 1.48x as on 31
2015) and Net Debt to EBITDA stood at 5.67x (as against 4.55x as on 30th Sept 2015).
Update on Forest Development Tax matter
The Hon’ble High Court of Karnataka has granted partial relief by a judgement dated December
3, 2015 delivered in response to a petition filed by mine owners and purchasers of iron ore,
including the Company, contesting levy of Forest Development Tax (FDT) by the State of
Karnataka. Pending certain clarifications on the levy of FDT from the Monitoring Committee, the
Company has not written back the FDT expenses recognized till date.
Subsidiaries Performance:
JSW Steel Coated Products:
During the quarter, JSW Steel Coated Products registered production (Galvanised/Galvalume
products) volume of 0.33 Million Tons and sales volume of 0.34 million tonnes. The Gross
Turnover and Net Sales for the quarter stood at `1,629 crores and `1,506 crores, respectively. It
recorded an Operating EBITDA of `38 crores and a Net loss after Tax of `22 crores for the
quarter.
Chile Iron ore Mines:
The Chile operations remain under care and maintenance from end April 2015. The Company
reported an EBITDA loss of $0.32 million for the quarter.
st December 2015 (as against 1.22x as on 30th Sept
US Plate and Pipe Mill:
The US based Plate and Pipe Mill facility produced 0.049 million net tonnes of Plates and 0.013
million net tonnes of Pipes, reporting a capacity utilization of 20% and 10%, respectively, during
the quarter. Sales volumes for the quarter stood at 0.036 million net tonnes of Plates and 0.012
million net tonnes of Pipes. It reported an EBITDA Loss of $4.9 million for the quarter.
Consolidated Financial Performance:
The Company recorded Gross Turnover and Net Sales of `9,562 crores and `8,621 crores,
respectively, for the quarter, and an operating EBITDA of `892 crores.
During the quarter, the Company recorded impairment charges of ` 2121 crores towards fixed
assets, goodwill and other assets comprising of ` 905 crores for its US operations of plate and
pipe mill, ` 172 crores for its coal mines operations in US and ` 1045 crores for its iron ore mines
operation in Chile, leading to a downward revision of the carrying value. The Net loss after Tax
for the quarter was `923 crores, after incorporating the financials of subsidiaries, joint ventures
and associates.
Gross Turnover and Net Sales for the 9 month stood at `34,045 crores and `30,746 crores
respectively. The Operating EBITDA was `4,248 crores and the Net loss was `913 crores for the
9 month ended December 15.
The net gearing at consolidated level was 1.83x at the end of the quarter (as against 1.72x as
on 30th Sept 2015), Net debt to EBITDA at consolidated level is 6.66x (as against 5.32x as on
30th Sept 2015) and the weighted average interest cost of debt was at 7.11% (vis-a-vis 7.15% as
on 30th Sept 2015).
Projects Update:
The Blast Furnace at Vijayanagar which underwent a planned shutdown for relining and
modification from August 2015 onwards is expected to get commission in 4QFY2016. The Blast
Furnace at Dolvi and one of the Blast Furnaces at Salem too went under shutdown for capacity
expansion during the quarter and are likely to get commissioned in 4QFY2016. Other ongoing
projects are progressing satisfactorily and are likely to complete as per schedule.
Outlook:
Global economic outlook remains fragile. The International Monetary Fund (IMF) has revised
down its projections for CY2016 World Economic Growth yet again to 3.4%. The expectations of
a pick-up in global growth momentum continue to wane as downside risks to the growth outlook
persists - with issues related to slowdown and rebalancing in China, global trade imbalances
driven by a sharp drop in commodity prices as well as weakening currencies, limited room for
further monetary stimulus, and uncertainty around monetary tightening by the US Fed.
The global steel demand continues to weaken with lower investment activities and weak
manufacturing across most regions. The world Crude Steel production in CY2015 fell by 2.9% as
capacity utilization in December 2015 dropped below 65% – and most regions continue to
witness a decline. Steel exports from steel-surplus countries (as domestic demand falls faster
than production cuts) are at elevated levels. Predatory prices of exports continue to intensify
trade remedial measures across most regions.
In India, overall consumer discretionary spending, public Capex (highways, ports, power
transmission, etc.) and foreign direct investment have continued to improve, supporting a
gradual growth recovery. However, weaker exports and pick up in private Capex have been a
drag.
India is the only major steel consuming market globally which is still witnessing an increasing
demand environment. Progress on policy reforms, coupled with government’s measures to
pump prime the economy bode well for steel demand over the medium term. However, this also
makes India an attractive export destination for steel surplus countries.
Domestic steel industry continues to suffer from rising imports – especially from China, Japan,
and Korea. During the first nine month of FY2016, consumption of domestically produced steel
fell by 1.2%YoY as total steel imports surged by 29%YoY. Finished steel exports also decreased
by 30%YoY in 9MFY16. Indian steel industry is grappling with headwinds of an insipid demand,
excess supply and pricing pressure driven by a surge in imports at predatory pricing. This
necessitates urgent and adequate measures to check unbridled and unfair imports of steel.
JSW Steel is a part of the diversified $11 billion JSW Group, which has presence in Steel, Energy,
Infrastructure, Cement, and JSW Ventures. JSW Steel is the leading integrated steel company in
India with an installed steel-making capacity of 14.3 MTPA. JSW Steel’s plant at Vijayanagar is
one the largest single location steel producing facility in the country with a capacity of 10 MTPA.
JSW Steel has a strong product assortment covering the entire gamut of flat and long steel
products manufactured through technology in the form of Corex and Blast furnaces.
