Jindal Steel and Power Ltd (JSPL) is exploring the possibility of setting up a steel plant with a capacity of 2- 2.5 mtpa at Patratu in Ramgarh district of Jharkhand. At present, the company has a wire rod mill of 0.6 mtpa and a bar mill of 1 mtpa capacity with a rebar service centre at Patratu. Pointing this out, V.R. Sharma, Managing Director, adds, “The proposed brownfield project is in the ‘active consideration’ stage and will entail backward integration by setting up a steel making unit. A blast furnace project in Patratu is under active consideration. The raw material is available and we want to produce steel and feed to the mills there. So a 2 mtpa plant at Patratu is in a strong conceiving stage. In fact, the basic engineering has already been done and we are just waiting for the right time to take off. The project, if undertaken, will require an investment of a few thousand crores. Once plans are firmed up and work begins, it will take between two and three years for the plant to become operational.”

According to him, the company restarted its gasbased DRI plant in January 2020. The ramp-up of the plant has been smooth as it has moved from 2,000 tpd to 4,000 tpd in two weeks and expects to move to 6,000 tpd in the coming few weeks. At 6k tpd, the costs for running the DRI plant will be the same as that of the blast furnace. The company expects the additional volumes to reflect from February onwards as it faced some temporary shutdowns in December-January 2020. The company spent Rs. 1,080 crore in FY19 and expects to spend Rs. 700 crore in FY20, mainly for maintenance activity. It spent Rs. 200 crore in 3QFY20. The company has maintained its FY20 volume guidance at 6.5 mtpa for the domestic steel business and maintained 2 mtpa for Shadeed. The company has also guided for 7.5 mtpa for next year given the sharp ramp-up of the Angul steel plant and restart of the DRI plant.

Reviewing the performance of the company during Q3FY20, Mr. Sharma reveals that JSPL’s consolidated net sales fell 3% to Rs. 9,299.78 crore as compared to Q3FY19. “Operating margins fell 210 bps to 19.6%. As a result operating profits decreased 12% to Rs 1,819.52 crore. PBT was a loss of Rs. 200.8 crore compared to a profit of Rs. 13.6 crore. Considering a 82% fall in tax expenses to Rs. 17.77 crore, net profit reported was a loss of Rs. 218.57 crore compared to a loss of Rs. 87.24 crore. Further considering minority interest and share of loss of associate, net loss was Rs. 224.28 crore compared to loss of Rs. 24.05 crore. JSPL produced 2.11 million tonnes of steel on a consolidated level (up 19% from 1.77 million tonnes in Q3FY19) and sold 2.24 million tonnes of steel (up 30% from 1.73 million tonnes in Q3FY19).”

According to him, the company’s standalone performance reported a rise in production of 22% yoy for steel and related products to 1.61 million tonnes (1.32 million tonnes in 3QFY19) and sales of 1.67 million tonnes (up 31% yoy). Crude steel production at a standalone level rose to 1.53 million tonnes (up 25% yoy) while sales were at 1.61 million tonnes (up 34% yoy). During Q3FY20, production of pellets was 1.79 million tonnes. The company achieved a rise of 13% yoy in external sales of pellets by selling 0.65 mt during Q3FY20. For 9MFY20, the company’s consolidated net sales fell 44% to Rs 28,184.82 crore compared to 9MFY19 and operating margins fell 250 bps to 20%. As a result, operating profits decreased 14% to Rs 5,634.1 crore. Other income fell to Rs. 1.69 crore compared to Rs. 15.68 crore. PBDIT decreased 14% to Rs. 5,635.79 crore. Interest cost was up 1% to Rs. 3,141.53 crore. PBDT decreased 28% to Rs. 2,494.26 crore. Depreciation remained flat at Rs. 3,110.45 crore. PBT before EP was a loss of Rs. 616.19 crore compared to a profit of Rs. 368.37 crore. Considering the 72% decrease in tax expenses to Rs 89.13 crore, the net result was a loss of Rs. 705.32 crore as compared to a profit of Rs. 301.82 crore.

At the standalone level, the company reported a 22% rise in production of steel and related products yoy to 1.61 million tonnes (1.32 mt in Q3FY19) and sales during Q3FY19 of 1.67 mt (up 31% yoy). Crude steel production in standalone rose to 1.53 mt (up 25% yoy) while sales were at 1.61 mt (up 34% yoy). Production of pellets was 1.79 mt in Q3FY20. The company achieved a rise of 13% yoy in external sales of pellets and sold 0.65 mt during Q3FY20.

POWER GEN FALL

Pointing out that “the slowdown in economic activities along with the extended monsoon resulted in lower power demand during the quarter,” Mr. Sharma adds, “The company generated 1,900 million units in the reported December quarter as compared to 2,271 million units in Q2FY20. Jindal Shadeed reported production of 0.50 mt of crude steel (as against 0.46 mt in Q3FY19, up 10%). On the back of cost savings and improved efficiencies, the company generated EBITDA of $ 33 million for Q3FY20 (rise of 106% qoq). Margins were aided by higher steel prices and lower costs given the inventory lag. The company highlighted that the price trajectory had improved further in the markets.

According to him, during this quarter, the mine at Chirodzi produced 640 KT ROM (up 42% yoy). The fall in coking coal prices and the holiday season in this quarter impacted the revenue and profitability as compared to the previous quarter. The Mozambique operations are on the path to expand production significantly by the end of the coming quarter. During the quarter, both the Wongawilli and Russell Vale mines remained under care and maintenance. In the reported quarter, JSPAL and WCL filed a restructuring proposal with the NSW Supreme Court, pursuant to a restructuring agreement entered into with majority lenders. At a hearing on 20th December 2019, the court approved the convening of meetings of the secured creditors of JSPAL and WCL (to vote on whether to implement the proposal) with such secured creditors’ meetings to be held on 30th January 2020.

On a consolidated level, JSPL produced 2.11 mt of steel and related products (up 19% from 1.77 mt in Q3FY19) and sold 2.24 mt of steel and related products (up 30% from 1.73 mt in Q3FY19).

Maintaining that “we feel the company shall benefit from the recent ruling by the Indian government allowing for commercial mining of coal without restrictions on the end use,” Mr. Sharma adds, “We hope to participate actively in the list of 84 coal blocks coming into auctions in various tranches as it sits on coal belts and enjoys locational benefits with respect to peers. We do not see demand headwinds, primarily due to its premium/niche products categories: specialty plates, rails and structural. The company is experiencing strong demand from the rebar segment with the increase in government spending on infrastructure.” According to Deepak Sugani, CFO, the company’s net debt declined to Rs. 35,500 crore as of December 2019 from Rs. 36,500 crore in September 2019 and Rs. 39,000 crore in March 2019. The net debt reduction of Rs. 1,100 crore during the quarter was led mainly by operational cash flow (Rs. 800-900 crore) and partly by working capital reduction.