Jindal Steel Q1 FY27 earnings call

The global macroeconomic landscape is significantly impacted by ongoing geopolitical situations, including the Ukraine-Russia war and conflicts in the Middle East. These events have led to a dwindled global economy, increased fuel prices, and a stable but slightly downward trend in steel consumption. Management expressed optimism for future resolutions, anticipating a rebound in the steel industry once these conflicts subside.

Domestically, the Indian steel industry experienced seasonal softness in Q1 FY27, typical during the monsoon season. Crude steel production declined by 6% quarter-on-quarter to 42 million tons, and finished steel consumption fell by 7% to 41.5 million tons. While HRC prices increased sequentially, TMT (rebar) prices softened after a strong start. The company anticipates a construction boom post-monsoon, supported by government initiatives and banking sector funding.

Jindal Steel Limited has strengthened its leadership team with key appointments, including Mr. V.R. Sharma as Managing Director, Mr. Rajiv Kumar as Chief Operating Officer, and Mr. Sandeep Modi as Chief Financial Officer. The strategic focus is on achieving 100% capacity utilization, reducing costs, and enhancing the value-added product mix. The company aims to grow through an 'earn and invest' philosophy, prioritizing value-engineered products over commodity capacities.

Consolidated revenue saw an 8% sequential decline, primarily due to a plant maintenance shutdown, which also led to a 15% sequential drop in sales volume. Despite this, consolidated adjusted EBITDA remained resilient at INR 2,667 crores, with EBITDA per ton increasing by INR 1,843 to INR 11,937. This improvement was driven by a richer product mix, with value-added products increasing from 61% in Q4FY26 to 66% in Q1FY27, and disciplined cost management. Consolidated profit after tax stood at INR 844 crores, though finance costs increased to INR 548 crores due to the capitalization of major expansion assets.

The company's installed crude steel making capacity is 15.6 million tons. For FY27, the sales volume is projected to be 10.5 to 11 million tons, with internal resources potentially reaching 11.5 to 12.5 million tons. The new blast furnace is targeted to ramp up to 12,000 tons per day by September and achieve 100% capacity utilization (13,000 tons per day) by December. The company expects to recover the 300,000 tons of hot metal loss incurred in Q1 in subsequent quarters.

Jindal Steel is implementing several initiatives to reduce costs, targeting an overall reduction of at least INR 1,000 per ton. A key project is the slurry pipeline, which is fully laid and undergoing trials, expected to be commissioned by mid-August and yield an INR 700 per ton cost benefit from Q2 FY27. The captive coal mix is projected to increase from 28% in Q1 FY27 to around 40% on an exit basis for FY27, further contributing to cost optimization.

The company's expansion strategy is centered on value-added and value-engineered products, aiming to produce at least 4 million tons of such products out of its 6 million tons capacity. Planned capacity enhancements include increasing pellet plant capacity to 12 million tons and sinter plant capacity to 17 million tons. The cumulative spending on the expansion program stands at INR 37,457 crores against an announced capex of INR 47,043 crores, with a target ROCE of 18-20% from these projects.

Jindal Steel has an MoU with the Government of Jharkhand for a 2.5-2.7 million ton blast furnace project. However, this project is contingent on the government allocating iron ore from the Jeraldaburu area. Management emphasized that no investment will be committed until these requirements are met, aligning with their disciplined 'earn and invest' capital allocation strategy.