JSW Steel cuts capex plans by 45% to Rs 9k crore for FY21

It expects the ramp-up of capacity utilisation disrupted by Covid-19 to resume near-normal run rates by end Q1FY20

JSW Steel, Sajjan Jindal, EBITDA, Domestic sales, Chile, Capex, Covid-19 disruption

JSW Steel reported a weak set of numbers, missing analysts’ estimates on all fronts. The company reduced the capex for the current year and highlighted challenges ahead for resumption of normal operations due to Covid-19-led disruptions.

“While the company is making efforts to gradually ramp up capacity utilisation, the domestic demand outlook is expected to remain subdued in the near term as a vast majority of customers across automotive, construction, engineering and capital goods, etc also will take time to resume operations and increase activity levels,” it said in a statement.

The company has reduced the capex for FY21 to Rs 9,000 crore from the earlier guidance of Rs 16,340 crore, as it expects delays to ramping up of capacity at its different units. During FY20 too, the company had revised down the planned capex spend to Rs 11,000 crore from Rs 15,700 crore announced in May 2019. The actual cash spend for FY2020 stood at about Rs 10,200 crore.

JSW Steel expects the ramp-up of capacity utilisation disrupted by Covid-19 to resume near-normal run rates by the end of Q1FY20. Meanwhile, the company said it intends to focus more on the export markets in order to improve utilisation, defray fixed costs over a higher base, generate cash flows and liquidate stocks. The company is also targeting cost-saving measures to recalibrate the cost base across all areas of operations.

JSW Steel’s net profit declined a sharp 87% year-on-year to Rs 188 crore for the fourth quarter ended March 31, 2020, due to an exceptional item of Rs 805 crore. This was on account of impairment provision of Rs 725 crore for the iron ore mining operations at Chile and Rs 80 crore towards retirement of certain fixed assets in India in its consolidated results.

Revenue from operations of the company decreased by 20% y-o-y to Rs 17,887 crore for the quarter impacted by lower sales volumes due the Covid-19-related disruptions in business, especially exports. Consolidated saleable steel sales for the quarter stood at 3.65 million tonne, down by 15% y-o-y, while the domestic sales were lower by 5% y-o-y. Exports sales at 0.46 million tonne was lower by 51% y-o-y. Bloomberg consensus estimates for revenue were at Rs 18,594.60 crore.

Lower sales impacted the Ebitda (earnings before interest, tax depreciation and amortisation) which fell 32% y-o-y to Rs 2,975 crore, analysts had estimated the Ebitda at Rs 3,049.26 crore. Consequently, the Ebitda margin declined 320 basis points on a y-o-y basis to 16.6%.

The company’s consolidated net debt to equity stood at 1.48x at the end of the March quarter, as against 1.35x at the end of Q3FY20 and net debt to Ebitda stood at 4.50x, as against 3.71x at the end of Q3FY20.

The company’s board has also given approval to raise long-term resources through issuance of non-convertible debentures with warrants which are convertible into or exchangeable with equity shares of the company for up to Rs 7,000 crore through qualified institutional placement.

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