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Deleveraged balance sheet to aid growth capex

JSPL reported consol. EBITDA of INR15.2bn (adj. for FX gain of INR4.1bn), lower than JMfe of INR19.9bn. Standalone EBITDA came in at INR14.3bn (adj. for FX gain of INR4.1bn) vs INR28.6bn in 1QFY23, implying an EBITDA/ton of INR7.1k. Exports stoodx at ~11% of total volumes vs 26% in 1QFY23 on account of export duty and weakened global demand. The company continues to maintain ~8.2-8.4 mn tons production guidance during FY23 primarily due to robust domestic demand. Further, the company recently won four coal blocks, namely – Utkal C, Utkal B1, Utkal B2 and Gare Palma IV/6. Once fully operational, these mines will help meet entire thermal coal requirement and enhance fuel security. The company remains hopeful of operationalizing these blocks by 4QFY23, with ramp up expected by FY25. Consolidated net debt declined to INR71bn in 2QFY23 (INR77bn in 1QFY23). Further, the company prepaid its entire overseas long term debt & even refinanced a portion of its standalone debt. 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.

* Lower realisations impact EBITDA: During 2QFY23, JSPL Standalone reported steel sales (incl. pig iron) of 2.01mn tons (up 15.5% QoQ). Export share decreased to 11% in 2QFY23 vs 26% in 1QFY23. Pellet production declined 7% QoQ to 1.79 mn tons while external sales stood at 109kt. JSPL reported revenues of INR131bn up 2.0% QoQ on the back of higher volumes majorly offset by lower realizations. The company reported an Adj. EBITDA of INR14.3bn (adj. for FX gain of INR4.1bn) implying an EBITDA/t of INR7.1k/t. PAT decreased 75.9% QoQ to INR4.7bn.

* Mixed bag performance from global subsidiaries: JSPL’s Mozambique mine prodn. stood at 1.16mn tons up 25% QoQ, however coking coal sales remained lower sequentially at 0.20 mn tons. Mozambique operations reported EBITDA of US$15mn. South Africa operations reported prodn. of 0.08 mn tons down 45% QoQ and sales of 0.03 mn tons down 58% QoQ as Kiepersol mine took an operational shutdown during 2QFY23. The mine reported EBITDA of US$13mn for the quarter. Australia operations reported prodn. of 0.15 mn tons up 9% QoQ. Dispatches remained flat at 0.08mn tons while EBITDA stood at US$8mn for the quarter.

* Coal blocks to 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 fully operational, these mines will help meet 100% of company’s thermal coal requirement. The Company remains hopeful of operationalizing these blocks by 4QFY23, with ramp up expected by FY25.

* Deleveraging continues: Consolidated net debt declined to INR71bn in 2QFY23 (INR77bn in 1QFY23). The company prepaid its entire overseas long term debt & even refinanced a portion of its standalone debt.

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