MUMBAI (Reuters) - JSW Steel Ltd, India’s third biggest producer of the alloy, will show another drop in earnings despite strong volume growth and margins will continue to suffer on surging input cost and marked-to-market losses.
Seven analysts surveyed by Reuters forecast, on an average, JSW’s July-Sept net profit would dip 7.6 percent to 4.66 billion rupees on an 80 percent rise in net sales of 45.37 billion rupees.
JSW’s April-June profit slipped by more than a half to 2.19 billion rupees, while sales jumped 54 percent to 36.71 billion rupees.
“JSW Steel remains a concern due to least raw material security among major players,” Edelweiss Securities, which has a buy rating on the company, said in a pre-earnings report.
JSW Steel, whose cost of production jumped over 60 percent this year, is scouting for mines in India and abroad to secure its raw material supplies in the wake of a recent surge in input cost.
The impact of a recent deal to buy iron ore and coking coal at nearly double and triple rates and a ceiling on selling price hit its bottomline, analysts said.
On the contrary, Asian steel giants POSCO and Baosteel are set to report solid profit growth in the quarter.
Indian steelmakers have been slower than their Asian rivals in passing through rising raw material costs as the federal government, battling inflation, opposed price hikes.
India’s inflation has nearly tripled since the start of the year to around 12 percent, while industrial output grew just 1.3 percent in August, with the infrastructure sector performing only slightly better at 2.3 percent from a year ago.
Fears that demand will slump due to a global market meltdown have sent shares in the firm into a tailspin, slipping nearly 50 percent in July-September.
Operating margins at JSW is seen falling by 10.4 percentage points in the quarter, Pawan Burde, senior analyst at Angel Broking said.
“JSW Steel’s realisation has gone up by 30 percent while the spike in input costs have been much more than that. Plus, there has been some forex losses,” Burde said.
As of March 31, 2008, JSW Steel has around $968 million of unhedged foreign currency debt on its balance sheet and this is likely to result in non-recurring marked-to-market losses of $3.8 billion in the Sept quarter, a Merill Lynch report said.
The partially convertible Indian rupee has shed 8.4 percent in the July-Sept quarter.
“The pressure on margins will continue for the rest of the year. Global prices have started correcting so there’s no room for Indian players to raise prices now. And, raw material costs are going to be like this for entire FY09,” Angel’s Burde added.