JSW Steel expects H2 turnaround after imports wash out Q2 margins

Mumbai: JSW Steel expects its margins to improve in the second half of FY25 as steel prices recover after touching multi-year lows in September, while the company’s cost-cutting measures continue to deliver results, according to a top executive.

Additional capacity from the company’s upcoming expansion projects will also help increase sales and spread fixed costs on a wider base, further aiding margins, Jayant Acharya, the joint managing director at the steelmaker, said in an interview.

JSW Steel is expecting about 6 million tonnes per annum (mtpa) of capacity addition in the latter half of the fiscal--1 mtpa at its Bhushan Power and Steel unit and 5 mtpa at its Vijaynagar steelworks in Karnataka. This will take its total domestic capacity to just over 34 mtpa.

The company also expects to operationalize four new iron ore mines during the latter half. This will help it reduce the cost of raw material and lower logistics costs as the mines will be closer to the company’s mills, the top executive said. The new mines will take the company’s captive sourcing of iron ore to 41%.

Also read | Sajjan Jindal's JSW is moving its mega EV bet to Maharashtra

The steelmaker also expects its coking coal costs to fall by $20-25 per tonne in the latter half on expectations of lower prices and using a more cost-effective blend that it has been experimenting with.

“We remain bullish for H2,” Acharya said. “The second half will have stronger seasonal demand, and our additional capacities are also playing out at the right time. This will give us a good volume increase, and also absolute improvement in Ebitda.”

Ebitda stands for earnings before interest, tax, depreciation and amortization, a metric to gauge the profitability of a business.

The steelmaker’s Ebitda in the second quarter dropped 31% year-on-year (y-o-y) to ₹8,757 per tonne due to lower steel price, which had fallen to nearly four-year lows in September due to competition from cheap imports. India's steel imports in the first half of FY25 are estimated to be about 5.1 million tonnes (mt), according to data from market intelligence firm BigMint. That's a 54% y-o-y rise.

However, JSW Steel's performance in Q2 was better than the Street's expectations, which had priced in an even lower Ebitda. The company’s cost-saving efforts aided its financial performance, analysts said. This is expected to further aid margins in the latter half as prices improve, the analysts noted.

Also read | A billion-dollar coal deal in JSW Steel's sights

“A combination of lower raw material costs, firm steel prices and operating leverage should drive ₹2,000-3,000/ton recovery in steel margins in 2HFY25E,” said analysts at Kotak Institutional Equities led by Sumangal Nevatia. The analysts have pencilled in an Ebitda of ₹10,077-11,703 per tonne in FY25 and FY26 on an annualized basis.

Along with the BPSL and Vijaynagar expansions, the company plans to add capacity through some de-bottlenecking exercises and a 5 mtpa expansion at its Dolvi plant to take its total capacity in India to 42 mtpa by the end of FY28. Coupled with a strong domestic demand growth, this would result in a compounded annual demand growth of 11% between FY24 and FY27, according to the Kotak analysts.

However, they have trimmed the company’s Ebitda estimates over this period by 5-6% due to narrower domestic margins and lower earnings of the company’s international business.

And read | JSW to pump in ₹65,000 crore in Odisha for integrated steel plant