Better product mix, volume boost to shape Jindal Steel's earnings
₹31,000 crore capex plan, set to wrap up by FY27, with funding mainly from internal accruals. The company will utilize 75% of the capexfor capacity expansion at Angul (Odisha), 10% is slotted for ACPP-II, 5% for coal mines and 10% for new projects. The capacity expansion at Angul plant will enhance JSPL’s crude steel capacity by over 65% to 15.9 million tonne (MT).
The planned expansion, which is expected to be completed by Q3FY26, will catapult the company to the fourth largest steel manufacturer in India, said a Motilal Oswal Financial Services report dated 20 February. As such, a better product mix will mean higher realization, leading to better margins. Post the capex, share of high-margin flat steel products in the sales mix is expected to increase to approximately 55-58% from about 30-35% currently.
In the near term, it helps that the March quarter is typically the strongest quarter for steelmakers. Higher domestic sales in Q4FY24, along with additional volumes from the tie-up with Rashtriya Ispat Nigam Ltd, and a foray into flat steel products at the recently commissioned hot-strip mill would aid profitability. In its latest earnings call, JSPL said steel spreads could be affected by an additional $10–20 per tonne increase in coking coal costs and a 2-3% decline in realization in Q4.
Going ahead, lower coal costs with further ramp-up at captive coal mines Gare Palma IV/6 and Utkal block C, and slurry pipeline which is expected to be commissioned in Q1FY25 and the anticipated reduced cost of steel will bolster Ebitda margin in FY25. However, the anticipated rise in coking coal cost could dent margin slightly. Kunal Kothari, analyst at Centrum Broking, believes that the on-time completion of the expansion plans will
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