MUMBAI : Jindal Steel and Power Limited (JSPL), as expected, reported a strong Q4 show, as rising steel prices continue to bode well for improved operating performance. Strong demand, coupled with completed capacity expansions, meant the company reported robust volume growth, too. Steel production at 2.07 million tonnes was up 35% year-on-year (y-o-y) and sales of 1.91 million tonnes were up 37% y-o-y.

What’s more, the strong rebound in international demand means the company’s exports of value-added products are rising, too. The share of exports during Q4 increased to 27% compared with 21% in Q3FY21. This further bodes well for margins. It is not surprising that JSPL reported its highest ever consolidated Ebitda of Rs5,287 crore against Rs4,579 crore in the previous quarter. The company saw revenue from operations at Rs11,881 crore (up 13% sequentially).

Moving forward the prospects continue to be led by rising steel prices. The rebounding global steel demand and limited China supplies are contributing to the rise in steel prices. With domestic steel at a significant discount to international steel, cheap imports remain restricted. Also, the scope for further domestic price hikes remains intact.

Prices of key raw material prices, such as iron ore, too, are on the rise. JSPL, however, remains comfortable on the iron-ore front with secured supplies from Sarda Mines inventory. Coal prices are stable, but any rise is to be watched for.

Meanwhile, the company’s debt had been a key concern and so has been the low profitability of the power business. Post completion of Oman steel divestment, which helped reduce debt, rising cash flows in the steel business have fast-tracked debt reduction further. Net debt has declined to Rs10,589 crore on a standalone basis and Rs19,332 crore on a consolidated basis, after repayment of Rs2,462 crore recently. The debt reduction is further boosting earnings. The company management plans to reduce debt to Rs15,000 crore by end of FY22. Analysts at Motilal Oswal Financial Services Ltd expect the company's net debt to be reduced to Rs11,200 crore by the end of FY23, driven by strong cash flows. The company is also divesting its power business, which can help reduce debt further.

Additionally, analysts at Kotak Institutional Equities expect the divestment to allow the company to invest in high IRR (internal rate of return) projects—downstream capacity and 6 MTPA brownfield expansion at Angul. They also expect an increase in return ratios as Jindal Power has low single-digit return on capital employed (ROCE) and is reducingcarbon footprint by 50%. The reduced carbon footprint also means the company’s access to global capital improves further.

On capacity expansion, the company is looking at doubling Angul Plant capacity from 6 MTPA to 12 MTPA. The financing would be done through internal accruals, said V.K. Sharma, managing director, JSPL.

While most plans are to accrue benefits, execution definitely holds the key. In the near term, the street will be watchful on any prolonged phase of lockdowns in the country, and its impact.