Jindal Steel Q1 net seen doubling as sales rise

Thu, Jul 24 11:51 AM

NEW DELHI (Reuters) - Jindal Steel and Power Ltd's quarterly profit is likely to double, with rising steel sales and prices boosting revenue even as its iron-ore and coal mines insulate it from rising costs that are affecting peers.

Net profit for the April-June period is forecast to rise to 5.13 billion rupees from 2.50 billion rupees in the prior-year quarter, according to a survey of seven analysts by Reuters.

"Steel realisations have gone up. They are into long products, where the price increase has been more than in flats," Pallav Aggarwal, a steel analyst at brokerage firm MF Global-Sify Securities India, said.

"Unlike others, they are also more integrated," he added, refering to the cost-price advantage Jindal has over peers as it can source key raw materials from its captive mines.

For instance, rising costs have led analysts to forecast a 29 percent profit drop for JSW Steel Ltd, the country's third largest producer of the alloy, when it publishes results later this month.

Prices of iron ore and coal have steeply risen on strong demand for steel from housing, infrastructure and auto sectors.

Steel makers across Asia are following leads from China, after Baosteel recently agreed to a near-doubling of iron-ore contract prices with Rio Tinto and BHP Billition Ltd/Plc.

Asian benchmark thermal coal prices have tripled over the past year to reach a record $201 a tonne on July 1.

MARGIN EXPANSION

When Jindal Steel reports its fiscal first-quarter results on Friday, the analysts polled, on average, expect to see a 64 percent rise in revenue to 20.1 billion rupees. They forecast core margins at 44.4 percent, up from 39.2 percent a year ago.

Some of that margin jump will come from the firm's focus on long products -- rods and bars. Analysts at Edelweiss estimate prices of longs rose an annual 32.2 percent in June, while flats -- plates and strips -- rose just 12.4 percent.

Jindal's diversion of its sponge-iron production into making high-value steel products, should also help this margin expansion, MF Global's Aggarwal said.

Last year, Jindal Steel's sponge iron sales declined by 42 percent chiefly on higher internal usage of the metal.

Jindal, which has a market capitalisation of 325 billion rupees, has seen its shares drop 15.5 percent in the quarter, compared with the metal's index's 5.8 percent decline and the broader market's 14 percent fall.

But the stock trades at 11.35 times its forecast earnings, above the sector median of 7.19, data from Reuters show.

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