JSW Steel reports highest ever Production, Sales, EBITDA and PAT
JSW Steel Limited (“JSW Steel” or the “Company”) today reported its results for the Fourth Quarter and the Financial Year ended 31st March, 2018 (“4Q FY2018” or the “Quarter” and “FY2018” or the “Year”).
The current quarter was marked by a strong growth in demand across regions, which, in turn, led to higher commodity prices and spreads.
The Company achieved its highest ever Crude Steel production for the quarter at 4.31 million tonnes, up 5% YoY as well as QoQ, on account of higher utilisation and sound operational performance across all locations. Aided by a robust domestic demand, primarily for long products, the Company also achieved highest ever quarterly sales volume of 4.22 million tonnes, which grew by 7%YoY and 6%QoQ.
Consolidated sales volume for the quarter stood at 4.18 million tonnes, up by 6% YoY and 4% QoQ. Domestic sales volumes surged by 41% YoY and 25% QoQ to 3.55 million tonnes, led by rising infrastructure spend and robust automotive segment growth. The Company continued to focus on enriching the product mix as sales of value added and
special products (VASP) increased 14% YoY and 2% QoQ to 2.36 million tonnes, and share of VASP in total shipments stood at 57%. For the year FY2018, the Company reported Crude Steel production of 16.27 million tonnes, a growth of 3%YoY, achieving 98.6% of its guidance. Production volumes in the first half were impacted due to water shortages and constrained iron ore availability.
However, Saleable Steel sales volume for the year grew by 6%YoY to 15.62 million tonnes, at 100.8% of the guidance as the company liquidated some inventory to meet demand growth. The consolidated sales volume for FY2018 stood at 15.55 million tons, an increase of 6% YoY. Sales of value added & special products (VASP) in FY2018 grew by 13% YoY to
9.00 million tonnes driven by higher sales to automotive, appliances, projects and infrastructure segments.
The details of production and sales volumes are as under:
Standalone financial performance:
With a strong underlying demand and rising international prices, domestic steel prices, especially long products, went up during the quarter. As a result, JSW Steel recorded Revenue from operations for the quarter of Rs. 19,699 crores, which grew 16% YoY. Despite higher cost of key inputs like iron ore, coking coal and ferroalloys, Operating EBITDA for the quarter grew by 68% YoY to Rs. 5,043 crores and EBITDA margin stood at 25.6%. The net profit after tax stood at Rs. 2,235 crores for the quarter, a rise of 123% YoY.
Revenue from operations for FY2018 stood at Rs. 66,234 crores, up 16% YoY. This was driven by sales volume growth of 6% YoY and higher average realisations. The Company also progressed well on multiple performance improvement initiatives – from diversified sourcing, optimisation of logistics costs, digitalisation projects driving improvement of yields and productivity. As a result, Operating EBITDA for the year grew by 19% YoY to Rs. 13,741 crores. The company posted net profit of Rs. 4,625 crores for the year, witnessing a growth of 29% YoY. Gearing (Net Debt to Equity) at the end of the quarter stood at 1.27x (as against 1.53x at the end of 3Q FY2018) and Net Debt to EBITDA stood at 2.59x (as against 3.40x at the end of 3Q FY2018).
Consolidated financial performance:
JSW Steel recorded Revenue from operations of Rs. 20,817 crores for the quarter, a growth of 16% YoY. Consolidated Operating EBITDA for the quarter improved by 67%YoY to Rs. 5,290 crores and EBITDA margin for the quarter stood at 25.4%. The net profit after tax increased to Rs. 2,879 crores for the quarter after incorporating the financials of subsidiaries, joint ventures and associates. The operational performance at the US operations of both the Plate and Pipe mill at Baytown, as well as the US coal operations, have seen a consistent improvement during the course of the year. This has been supported by a strong economic outlook for the US. Consequently, the Company during the quarter ended 31st March 2018 has recognised a Deferred Tax Asset amount of Rs. 729 crores on the unused tax losses to the extent the US operations has sufficiently taxable temporary differences. For FY2018, the Company has recognized a Deferred Tax Asset of `1,301 crores.
Revenue from operations for FY2018 stood at Rs. 71,503 crores. The Operating EBITDA stood at Rs. 14,794 crores – registering a growth of 22% YoY. The company reported a Net profit of Rs. 6,113 crores for FY2018 as compared to Rs. 3,467 crores for FY2017.
The company reported a Return on Capital Employed (ROCE) of over 16% for FY2018. Net gearing (Net Debt to Equity) at consolidated level was 1.38x at the end of the quarter (as against 1.68x at the end of 3Q FY2018). More importantly, Net Debt to EBITDA at a consolidated level stood at 2.57x (as against 3.32x at the end of 3Q FY2018).
The Company’s net debt reduced by Rs. 4,048 crores during the quarter and by Rs. 3,529 crores during the year, despite higher activity levels. Interest cost reduced during the quarter primarily on account of repayment of loans and lower interest costs. The weighted average interest cost decreased by 24 bps during the year to 7.04%.
Considering the Company’s financial performance for FY2018, the Board of Directors has recommended dividend as below subject to approval of the members at the ensuing Annual General Meeting: (i) Dividend at the stipulated rate of 10% per share on the 10% Cumulative Redeemable Preference Shares of Rs.10 each of the Company, i.e. (i) Re. 1 (rupee one only) per share of Rs.10 each (prior to its part redemption on 15.12.2017), (ii) Re. 0.75 (paise seventy five only) per share of Rs.7.50 each (face value post redemption on 15.12.2017); and (iii) Re. 0.50 (paise fifty only) per share on the 10% Cumulative Redeemable Preference Shares of Rs. 5 each (face value post redemption on 15.03.2018), has been recommended for the year ended 31 March 2018; and dividend at the stipulated rate of 0.01% per share starting from October 1, 2002 on cumulative redeemable preference shares. The Board has, further, recommended dividend at Rs. 3.20 per equity share on the 2,41,72,20,440 equity shares of Rs. 1 each for the year ended March 31, 2018, subject to the approval of the Members at the ensuing Annual General Meeting. The total outflow on account of equity dividend including corporate tax on dividend will be Rs. 932.5 crores, vis-a-vis Rs. 654.6 crores paid for FY2017.
The Production and Sales guidance for FY2018-19 is given below, which translates into a capacity utilization of 93% :
Global growth projections remain firm for 2018 with broad based recovery across regions. The positive momentum in the US continues with policy support, manufacturing focus, employment growth and strong consumer confidence. The Euro area is stabilising at a higher level with strong domestic demand, supportive monetary policy and robust trade. Japan’s growth is expected to be supported by stronger exports, rising investments and budgetary support. China’s growth rate is expected to soften as the rebalancing away from investment to private consumption and from industry to services continue. Commodity exporting countries are expected to perform better with increasing commodity prices. However, rising protectionism, hardening interest rates, increasing oil prices and geo-political concerns pose a risk to global growth.
The World Steel Association (WSA) forecasts global steel demand to reach 1,616 Million tonnes in 2018, an increase of 1.8% over 2017. Steel demand is benefitting from favourable global economic momentum. China has seen a strong growth in steel demand during the first quarter of CY 2018, even though WSA forecasts zero growth in China for the full year. Hence, there is an upside risk to global demand growth forecasts for 2018. Chinese exports are lower on YoY basis and are expected to taper further as they continue to shut inefficient capacities and focus on domestic consumption. Global steel prices are expected to remain buoyant with steady demand growth across regions, lower exports from China and steady raw material prices.
Indian growth outlook is improving with effects of demonetisation and GST slowly fading away. Structural reforms are expected to increase productivity and incentivise investments. Gross fixed capital (GFC) formation continues to grow with government spending on infrastructure. Vehicle sales remain robust while industrial production growth has been positive. Manufacturing PMI remains in the expansionary zone. Inflation has been creeping up with higher commodity prices and robust domestic demand. As a result, interest rate cycle poses an upward bias. Surging crude oil prices pose a risk to domestic inflation and Indian currency in the near term. Steel demand grew at a healthy rate of 8% in 4QFY18. However, imports of steel into the country remained at elevated levels in FY2018 indicating that the trade remedial measures in place are ineffective. Flat products imports in FY2018 increased by 8% – with imports of coated products surging by 93% and of colour coated products increasing by 169%. Imports from Korea and Japan increased by 13% YoY in FY2018 and constituted ~45% of total imports.
With imposition of Section 232 in the US and rising trade measures in other regions, there is a likelihood of surplus steel tonnages finding their way into India. This necessitates imposition of effective trade remedial measures in a timely manner by the Government of India. Steel consumption in India is expected to grow by 7% – 7.5% in FY2019 on the back of government push for infrastructure projects and strengthening consumer demand.