The operational performance of steel companies in the quarter ended September 2018 has been noteworthy thanks to better realisations and higher demand. Continued focus on high-margin, value-added products paid off for major players such as Tata Steel and JSW Steel, while improved operational efficiencies augured well for SAIL. Also, recent acquisitions of insolvent steel companies by market leaders in the industry appear to be bearing results.
In this article, we dive into steel companies’ September quarter results to identify key trends in the core sector.
Better realisations
In the latest September quarter, all major steel companies in India reported strong growth in revenues. Their domestic operations were supported by robust domestic demand amid global uncertainties, given the ongoing trade wars.
The revenues of Tata Steel, JSW Steel and SAIL from Indian operations were up by 26 per cent (₹17,902 crore), 28 per cent (₹19,669 crore) and 23 per cent (₹16,718 crore) y-o-y respectively.
In terms of volumes, JSW Steel sold 3.96 million tonnes, followed by SAIL and Tata Steel which sold 3.48 million tonnes and 3.18 million tonnes respectively. But, on account of higher share of value-added products such as automotive and branded products, Tata Steel’s realisations were higher at about ₹55,000 per tonne compared to nearly ₹50,000 per tonne for JSW Steel and ₹48,000 per tonne for SAIL.
That said, growth in realisations, when compared to the previous year, was higher for JSW Steel, which went up by 27 per cent from ₹39,000 a year ago. This could be attributed to the high growth in the automotive sales, up by 36 per cent y-o-y. Realisations for Tata Steel and SAIL grew by 20 per cent and 25 per cent respectively.
Improved margins and domestic sales
In terms of operational margins, Tata Steel usually tops the charts as it owns captive iron ore (key raw material for steel) mines which insulate it from volatilities in raw material prices. The operational margin for the quarter for Tata Steel and JSW Steel stood at around 34 per cent and 24 per cent respectively. SAIL improved remarkably, its operational margins more than doubling to 15 per cent from 7 per cent a year ago.
Sequentially, though, operating margins were a tad lower for JSW Steel and SAIL because of flat growth in realisations and increase in the cost of key inputs such as iron ore, coal, and natural gas.
Uncertainties in the global market, which started with imposition of tariffs by the US on steel and aluminium imports, have nudged Indian players to focus on the domestic market. JSW Steel’s exports, for instance, accounted for 17 per cent of total sales in the September quarter, down from 26 per cent last year. For Tata Steel, too, export volumes declined by about 23 per cent y-o-y.
Consolidation
This is the first quarter in which Bhushan Steel’s earnings were completely consolidated with Tata Steel’s numbers. Sales from Bhushan Steel grew by a reasonable 10 per cent to 1.14 million tonnes in the quarter. It contributed ₹5,862 crore and ₹1,173 crore respectively to the revenue and operating profit of the group.
Monnet Ispat was taken over by the consortium of JSW Steel and Aion Capital. JSW Steel is focussing on restarting the pallet plant and blast furnace in the next quarter and take them to their full capacity of 1.5 million tonnes per annum. This will take the total capacity of the company to 19.6 million tonnes per annum.
In addition to Monnet Ispat, JSW Steel recently acquired two other assets in Italy and the US. Contributions from them are expected to start in the fourth quarter of the fiscal, which will further boost profits.