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Deleveraged balance sheet to aid growth capex

JSPL reported consol. EBITDA of INR29.9bn, higher than JMfe of INR22.6bn primarily due to higher realisation. The company reported an increase in inventory of INR17.8bn during the quarter. Standalone EBITDA came in at INR28.6bn (adj. for FX gain of INR4.5bn) down 8.4% QoQ, implying an EBITDA/ton of INR16.5k. JSPL expects to maintain export mix at ~20%, focusing primarily on value added/customised products. The company maintains ~8.2-8.4 mn tons production guidance during FY23. The company does not plan any major shutdowns; it will opt for intermittent shutdowns in case of breakdowns. Further, the company recently won four coal blocks, namely – Utkal C, Utkal B1, Utkal B2 and Gare Palma IV/6. Once operational, these mines will help meet entire thermal coal requirement and enhance fuel security. The company expects the first mine to become operational by year end. Consolidated net debt reduced by INR11bn to INR77bn in 1QFY23 (from INR89bn in Mar’21) despite receipt of INR30bn form JPL divestment. Net debt reduction stood lower as the company witnessed working capital build up to the tune of ~INR25-30bn. Despite the near term challenges, the company aims to become net debt free by end of FY23. With a strong balance sheet to support growth, increasing raw material security, and low cost of production, JSP remains well positioned to withstand cyclical challenges. Maintain BUY.

* Higher realisations and increase in inventory aids EBITDA: During 1QFY23, JSPL Standalone reported steel sales (incl. pig iron) of 1.74mn tons (down 16.3% QoQ). Export share decreased to 26% in 1QFY23 vs 29% in 4QFY22. Pellet production declined 11% YoY to 1.92 mn tons while external sales stood at 30kt. JSPL reported revenues of INR128bn down 7.1% QoQ as lower volumes more than offset the benefit from higher realisations. The company reported an Adj. EBITDA of INR28.6bn (adj. for FX gain of INR4.5bn) implying an EBITDA/t of INR16.5k/t. PAT increased 6.2% QoQ to INR19.4bn primarily due to higher operating profit and lower finance costs.

* Mixed bag performance from global subsidiaries: JSPL’s Mozambique mine prodn. stood at 0.93mn tons down 11% QoQ, however coking coal sales increased 25% sequentially to 0.20 mn tons. Mozambique operations reported EBITDA of US$43mn. South Africa operations reported prodn. of 0.15 mn tons up 12% QoQ and sales of 0.07 mn tons down 20% QoQ. The mine reported EBITDA of US$11mn for the quarter. Australia operations reported prodn. of 0.14 mn tons up 10% QoQ. Dispatches also increased 8% QoQ to 0.08mn tons while EBITDA stood at US$3mn for the quarter.

* Capex guidance unchanged: JSPL has maintained its capex guidance of INR 224bn (incl. GST) over the next 2-3 years with annual capex expected at INR60-70bn p.a. The company does not plan any major shutdowns; it will opt for intermittent shutdowns in case of breakdowns.

* Coal blocks improve coal security: JSPL recently won four coal blocks, namely – Utkal C, Utkal B1, Utkal B2 and Gare Palma IV/6. These blocks have cumulative reserves of ~500 mn tons and clearance to produce upto 15.1mtpa. Once operational, these mines will help meet 100% of company’s thermal coal requirement. The Company plans to start production in next 12-15 months with one mine expected to be operational by March’23.

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