JSW Steel Limited -Financial Performance for Second Quarter FY 2022-23

Mumbai, India: JSW Steel Limited (“JSW Steel” or the “Company”) today reported its financial results for the SecondQuarterended 30^thSeptember 2022 (“Q2 FY23” or the “Quarter”).

 Key Highlights for Q2 FY23

Following the strong post-Covid recovery, global economic growth has been slowing in 2022, driven by elevated inflation leading to tightening monetary policy actions by central banks globally. Geopolitical tensions and the Russia-Ukraine conflict have led to elevated energy prices as well as shortages. Aggressive tightening by the US Federal Reserve is causing sharp depreciation of other currencies and creating financial market volatility and macro imbalances. Growth forecasts have been downgraded, and there is a rising risks of recession in Developed Markets.

In India, though inflation has been above the RBI’s threshold levels, the economy has been growing steadily, and is expected to be the fastest growing major economy in 2022 and 2023. The government’s infrastructure push, improvement in capacity utilizations, a broad-based revival in credit growth, strong corporate and bank balance sheets, and upbeat consumer and business confidence are all factors contributing to steady growth. However, slowing global growth and macro imbalances are a significant headwind.

The domestic steel industry witnessed demand growth with consumption at 27.93 Million tonnes in Q2 FY23, up by 13.0% YoY and 1.6% QoQ, supported by a strong automotive sector and demand from the infrastructure sector. However, the imposition of export duty on finished steel products in May 2022had made exports unattractive, with Q2 FY23 exports(excluding semis) from India at 1.41 million tonnes, lower by 66.4% YoY and 35.6% QoQ.

During the Quarter, the combined crude steel production of JSW Steel was 5.68 Million tonnes, sequentially lower by 3%, attributable mainly to extended maintenance shutdowns atJISPL, and subdued market conditions in USA. The 5mtpa Dolvi Phase-II expansion continued to ramp up and achieved average capacity utilization of ~ 80% vs. 60% in Q1 FY23.

The Company’s performance during the quarter was significantly impacted by a sharp fall in steel prices, while benefit of lower raw material prices will flow through with a lag. One-off items such as NRV (net realizable value) provisions and inventory losses, mark-to-market unrealized loss on outstanding foreign currency loans and payment of export duty on exports further impacted the operating performance. Despite a challenging global economic scenario, we expect healthy steel demand growth in India during H2 FY23 which along with flow through of lower raw material prices should aid Company’s performance in the coming quarters.

Standalone Performance Q2 FY23:

The details of standalone production and sales volumes for the quarter are as under:

Crude Steel Production was at 4.95 million tonnes, up 21% YoY, however marginally lower sequentially due to availability as well as logistics constraints in sourcing of iron ore.

Sales of saleable steel at the Standalone level were 5.01 million tonnesfor the quarter, up 24% QoQand 32% YoY, led by improved domestic demand mainly in the retail segment. Exports were at 7% of total sales during the quarter, with export volumesfalling 38% QoQ, due to imposition of export duty in May 2022.

The Company registered Revenue from Operations of₹32,494 crores,higher by 4.4% QoQ, mainly led by higher sales volumes, partly offset by reduction in average sales realization.

The Company registered Operating EBITDA at ₹1,742 crores for Q2 FY23, a reduction of 48%QoQ with an EBITDA margin of 5.4%. The EBITDA margin was lower primarily due to a 14% reduction in net sales realization, partly offset by a reduction in raw material prices,primarily coking coal &iron ore.

The Company reported Net Loss after Tax of ₹91crores for the quarter.

Subsidiaries’Performance Q2FY23:

JSW Steel Coated Products (Consolidated):

During the quarter, JSW Steel Coated Products, including its subsidiaries, registered a production volume (GI/GL + Tin) of 0.68 million tons and sales volume of 0.79 million tonnes. Revenue from Operations for the quarter stood at ₹6,723 crores, and an Operating EBITDA loss of ₹79 crores.Margins were impacted by lower realization and higher zinc prices.The subsidiary reported a Loss after Tax of ₹260crores for the quarter.

Bhushan Power & Steel Ltd (BPSL):

During the quarter, BPSL registered Crude Steel Production of 0.63 milliontonnes and Sales volume of 0.64 million tonnes. Revenue from Operations and Operating EBITDA loss for the quarter stood at ₹4,805 crores ₹183 crores, respectively. BPSL reported a Loss after Tax of ₹340 crores for the quarter.Performance during the quarter was severely affected by non-availability of iron oreand disruptionsdue to heavy rainfall in Odisha.

JSW Steel USA Ohio Inc.:

The EAF-based steel manufacturing facility in Ohio, USA, produced 48,691 net tonnes of HRC and 90,709 net tonnes of Slabs during the quarter. Sales volumes for the quarter stood at 52,862 net tonnes of HRC and 63,614 net tonnes of Slabs. Volumes were lower due to subdued demand for HRCin USA. It reported an Operating EBITDA loss of US $40.25 million for the quarter, part of which is attributable to NRV losses.

 US Plate and Pipe Mill:

The Plate & Pipe Mill based in Texas, USA produced 77,172 net tonnes of Plates and 4,969 net tonnes of Pipes, reporting a capacity utilization of 36% and 4%, respectively, during the quarter. Sales volumes for the quarter stood at 74,665 net tonnes of Plates and 4,576 net tonnes of Pipes. It reported an Operating EBITDA of US$ 24.73 million.

JSW Steel (Italy) S.r.l. (Aferpi):

The Italy based Rolled long products manufacturing facility produced 75,907 tonnes and sold 65,604tonnes during the quarter. It reported an Operating EBITDA of Euro 1.0 million for the quarter.

Consolidated Financial PerformanceQ2FY23:

Saleable Steel sales for the quarter stood at 5.74 million tonnes, higher by 28% QoQ,driven by higher domestic sales.

The company registered Revenue from Operations of ₹41,778 crores and Operating EBITDA of ₹1,752 crores, with an EBITDA margin of 4.2%. The fall in EBITDA isattributable toa reduction in the steel spread,as the decline in sales realization was only partly compensated by the reduction in coal and domestic iron ore prices.  The Loss after Tax for the quarter was ₹915 crores, after incorporating the financials of subsidiaries, joint ventures and associates.

Exceptional Items:

Exceptional items for the quarter and half year ended 30 September 2022 comprise of the following:

1. Income recognized amounting to Rs 256 crores in relation to compensation received / receivable in accordance with provisions of Coal Mines (Special Provisions) Act, 2015, against a subsidiary’s claim pertaining to expenditure incurred on deallocated coal mine vide Supreme Court order dated 24 September 2014.
2. Net gain amounting to Rs 335 crores pursuant to sale of entire 70% stake in Santa Fe Mining in Chile by a wholly owned subsidiary of the Company, primarily pertaining to Foreign Currency Translation Reserve balances recycled to statement of profit and loss and de-recognition of non-controlling interests carried in the consolidated financial results as on the date of disposal of subsidiary.

The Company’s consolidated Net Gearing (Net Debt to Equity) stood at 1.04x at the end of the quarter (as against 0.98x at the end of Q1 FY23), and Net Debt toEBITDA stood at 2.70x (as against 2.03x at the end of Q1 FY23).Net Debt as theof end of 30^thSeptember2022 stood at Rs 65,719crores, lower by Rs.1,502crores over 30^th June2022.