Of
late, the JSW management has been busy conveying to global investors and
analysts that all is well, as the iron ore situation has normalized in
Karnataka. The company has conveyed that it has procured 6.4 million tonnes of
iron ore (it requires 1.5 mt a month to run at full capacity) at a blended
price of Rs 3,050 a tonne. Not only have supplies improved, but the prices of
iron ore have also come off in recent times. The company has conveyed that
prices are down Rs 400 a tonne, while analysts say the fall is closer to Rs
1,000 a tonne.
With
this supply, JSW can run at 80 per cent capacity utilisation in the fourth
quarter, compared to 63 per cent in October. Edelweiss Financial Services, in a
report after a management meet, says: “Led by this, crude steel production
volume can ramp up from 1.7 mt in Q2 of 2011-12 to 2 mt and 2.2 mt in Q3 and Q4
of 2011-12, respectively.”
Ore
supplies from Karnataka mines may resume after there is a resolution over the
mining ban, say analysts. The Supreme Court hearing on allowing miners like JSW
Steel to begin operations is scheduled in the third week of January.
Given
that the issue of raw material has improved, analysts stick to their operating
profit estimates. However, Edelweiss has cut EPS estimates by 20.6 per cent for
2011-12 and 11.8 per cent for 2012-13, factoring in foreign currency losses and
higher interest costs. According to Antique Stock Broking, “the company had
unhedged forex exposure of $2.3 billion at the end of 2010-11. In Q2 of
2011-12, the company had forex losses of Rs 513 crore related to acceptances
(coking coal import) through profit and loss account, while Rs 530 crore
related to mark-to-market loss on forex loans was adjusted in the balance sheet
and a similar quantum is expected in Q3 of 2011-12.”
Despite
the easing of headwinds and attractive valuations, global investors are not
impressed. Last week, Nomura hosted a road show for the JSW management in the
US, where investors seemed concerned about the outlook for commodities, due to
slowing demand in Europe and China. Even as India remains a net importer of
steel, if there is a fall in global steel prices, JSW Steel could be affected
adversely.
Source:Business Standard
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