The erosion in net profit was mainly due to a surge in raw material costs, which are cooling down now.
Shares of JSW Steel Ltd declined over 0.5 percent in the morning trade hours on Monday after the company said its net profit for the June quarter fell 86 percent compared corresponding quarter a year ago. At 1:28 pm the stocks were trading at Rs 582 a 0.1 percent up from the previous close on the BSE.
The erosion in net profit was mainly due to a surge in raw material costs. In the quarter, the company's cost of materials increased from Rs 10,831 crore to Rs 25,597 crore year on year due to higher coking coal costs.
Here is a snapshot of the company's June quarter earnings:
The coking coal prices have now cooled from $600 per tonne to $230 per tonne, and the company expects the demand to pick up in the second quarter of this financial year.
“Inquiries have started coming in, so buying has to start now. We do not expect things to fall beyond what we are seeing today. In fact, demand will pick up in this quarter compared to last," Seshagiri Rao, joint managing director and Group CFO of JSW Steel, told CNBCTV18.
The company also expects to benefit from a reduction in the consumption prices in the current quarter as coking coal prices are going down globally, he said.
What do analysts say
Brokerage firm Nomura has maintained a ‘reduce’ rating for JSW Steel and increased the target price from Rs 500 to Rs 548 per share. As per the brokerage house, reversal of export duty can change the company's situation.
CLSA noted that JSW Steel’s EBITDA was below expectations due to several one-off provisions and has, hence, maintained a 'sell' rating on the steel maker's shares with a target price of Rs 500.
CITI and JP Morgan have also maintained a neutral rating on the stock, with a target price of Rs 600 per share. As per JP Morgan, the capital expenditure for the year has already been cut with raw material cost deflation over the next quarters, and the margin for JSW Steel should improve from the second quarter.
Low demand for steel in the market also led the company to prepone maintenance shutdowns that were scheduled for later during the year. As a result, the company's average capacity utilisation for the quarter fell to 93 percent, down from 98 percent the previous quarter.
Shares of JSW Steel have declined over 13 percent in the year so far.
(Edited by : Nishtha Pandey)
First Published: IST