While most steel manufacturers are staring at high debt and finding it difficult to negotiate with banks for additional funding requirements, JSW Steel's relatively better debt position seems to be giving it an edge. In addition, since it never undertook backward integration of operation by owning iron ore mines, it has an advantage amid subdued ore prices, a major raw material for steel. These factors make JSW SteelBSE -0.67 % better placed to benefit from the government's policy to impose minimum import price (MIP) on steel.

With a good share of high-value products such as coated steel products in its offering, the company surprised the Street with much higher realisation per tonne for the June 2016 quarter, a parameter that gives a sense of the demand and operating strength of the business. Realisation per tonne for the quarter was at $124, nearly 20 per cent higher than the estimates. Sales volume was higher by 1.8 per cent sequentially.

Higher realisations and lower costs helped it post 100 basis points sequential jump in operating margin before depreciation (Ebitda margin) at 28 per cent. Net profit rose to Rs 1,085 crore against Rs 300 crore in the preceding quarter.
JSW steel gains edge owing to lower debt, import price curbs
Despite a rise in the company's debt to Rs 45,355 crore — around 10 per cent rise after adjust for new accounting standards — the debt situation has not worsened. While debt-to-equity is at 2.3 times, debt-to-Ebitda improved to 5.7 from 6.4 at the end of the March quarter. While it is still high, it is expected to improve in the coming quarters.

Also, If MIP is extended beyond August, it will benefit the company. The company's peers are under pressure. Tata SteelBSE 1.27 % is struggling with its European operations, which is hit by low demand and high debt. The government-owned SAILBSE -0.95 % continues to remain least cost effective with high employee expense, whereas Essar SteelBSE 0.41 %, Jindal SteelBSE -1.82 % and Bhushan SteelBSE -0.92 % are expected to face working capital constraint given their high debt.

    
JSW Steel has been cautious over the past few years by not buying riskier assets. Its stock has risen by over 55 per cent in the past six months. Shares of Tata Steel, SAIL and Jindal Steel & Power are 65-88 per cent below their all-time highs. Some analysts have given a buy rating on the stock post results with price targets around Rs 1,738-2,108. On Thursday, the stock closed at Rs 1,685, down 3 per cent.

Source:economictimes.indiatimes.com