Muted performance; EBITDA/tonne to improve, going forward - JSW Steel Q2

What's Buzzing: 

JSW Steel reported a muted performance in Q2FY23; wherein it reported a net loss both for the standalone as well as consolidated operations. Lower than expected EBITDA/tonne for the standalone operations as well as muted performance from subsidiaries led to a subdued performance for JSW Steel. 

Context: 

For Q2FY23, JSW Steel's standalone operations reported EBITDA/tonne of Rs 3477/tonne, lower than our estimate of Rs 4800/tonne. Standalone EBITDA for the quarter was at Rs 1742 crore, lower than our estimate of Rs 2328 crore. Standalone EBITDA came in lower than our estimate on the back of lower-than-expected EBITDA/tonne. The performance of subsidiaries also came in muted during the quarter. As a result, consolidated reported EBITDA came in notably lower than our estimate. Consolidated EBITDA for the quarter was at Rs 1752 crore, lower than our estimate of Rs 3111 crore. 

Our Perspective: 

On the back of muted operating margins, both standalone as well as consolidated operations reported a net loss for the quarter. For Q2FY23, JSW Steel’s standalone operations reported a net loss of Rs 91 crore and JSW Steel’s consolidated operations reported a net loss of Rs 915 crore during the quarter. During the quarter, one-off items such as net realisable value (NRV) provisions and inventory losses, mark-to-market unrealised loss on outstanding foreign currency loans and payment of export duty on exports impacted JSW Steel’s operational performance. Going forward, JSW Steel’s operational performance is likely to improve on the back of a decline in coking coal consumption costs. On a QoQ basis, coking coal consumption cost is likely to decline by ~US$80/tonne in Q3FY23 (compared to Q2FY23). Hence, going forward, this is likely to result in an increase in EBITDA/tonne on a QoQ basis, thereby auguring well for the company. During Q2FY23, JSW Steel’s coking coal consumption costs were at US$381/tonne. It is expected to decline to ~US$300/tonne in Q3FY23E, aiding the company’s financial performance, going forward.