Financial results for fourth quarter FY 2021-22

FY22: A year of record Volumes, Revenues and Profitability

JSPL Standalone Performance

JSPL Consolidated Performance:

*Including pig iron; *Incl. GST

Industry Update:

After a weak FY21, India has witnessed a robust recovery in steel production and demand in FY22. India's crude steel production surged by 18% Y-o-Y to a record 120mt in FY22. India's steel consumption increased by 11% Y-o-Y to 105.4mt; surpassing the crucial 100mt level.

Uncertainty caused by rising COVID cases in early January 22 and logistical challenges due to limited rake availability resulted in domestic demand (29mt in Q4FY22) posting a modest decline on a Y-o-Y basis. India Steel demand was however still up by 7% Q-o-Q in the seasonally strong Q4. Ongoing geopolitical tensions has resulted in sharp increase in raw material costs for the industry with coking coal prices hitting unprecedented levels of USD700/t in March 2022. Coking coal prices have corrected since but continue to remain at elevated levels of USD500/t. Surging coking coal costs coupled with higher iron ore prices resulted in industry wide margins being impacted. During the quarter, the differential between longs and flat steel prices shrunk. Domestic rebar (primary) is currently trading at a small discount to Hot rolled coil (HRC) prices as compared to peak discount of approximately INR16,000/t in July 2021.

JPL Divestment concluded: The Company has divested Jindal Power (JPL) on 30 May 2022 receiving INR 3,015 Cr in total from Worldone Private Limited (acquirer) as part of the transaction. The divestment has further boosted Company's balance sheet strength; taking JSP a step closer to its vision of becoming a Net Debt free Company in FY23 - a rare feat for the Steel sector, historically associated with high leverage and stretched balance sheet. The divestment will further boost JSP's ESG scores with significant reduction in its carbon footprint associated with thermal power plants.

JSP has won four Coal Blocks in the recently concluded auctions: JSP has won four coal blocks in the 13th and 14th tranche of auctions, namely – Utkal C, Utkal B1, Utkal B2 and Gare Palma IV/6. These blocks have cumulative reserves of ~500 million tonnes and clearance to produce up to 15.1MTPA. Once operational, these mines will help JSP meet 100% its thermal coal requirement for the current as well as expanded steel capacity (~16MTPA by FY25). The Company is planning to start production from these mines in the next 12-15 months. These mines will help the Company to significantly enhance its fuel security and also aid in lowering costs.

1. JSPL Standalone Performance

1.1. Fourth Quarter FY22 Performance

JSPL India operations reported the highest ever steel production of 2.11 million tonnes (Up 2% YoY) and sales of 2.08 million tonnes (up 9% YoY) in 4QFY22. Sales were also aided by improved demand from export markets with export share rising to 29% in 4QFY22 (vs. 23% in 3QFY22).

Standalone operations reported Gross revenues of 15,609 Crs in 4QFY22 (+33% Y-o-Y) on the back of higher steel volumes and steel prices, partially offset by lower pellet sales. However, EBITDA declined by 11% Q-o-Q to INR 2,827 Cr due to surging coking coal costs. Profit after tax (PAT) declined by 30% Q-o-Q to INR 1,198 due to lower operating profit and INR 324 Cr one-off impact (due to write-off taken for mining investment and assets (INR192Cr) and expenses related to Water charges for prior year. and relinquishment of long term power agreement), partially offset by 9% Q-o-Q fall in interest expense.

Pellet production of 1.98mt posted a modest decline of 2% Y-o-Y. External sales of 0.14mt was lower by 53% Y-o-Y due to higher internal consumption.

FY22 Performance

Notwithstanding massive disruption caused by the pandemic in early FY22, unfavourable weather and several logistical challenges, JSP's wide product profile and geographical diversification stood the Company in good stead. For the full year, standalone production (incl. pig iron) increased by 7% Y-o-Y to hit a record for the fifth consecutive year (8.01 million tonnes vs. 7.51 million tonnes in FY21). Standalone Steel (incl. pig iron) sales also reached the highest ever level of 7.64 million tonnes (up 5% YoY). Buoyant export markets continued to support JSP's sales efforts with volumes maintained at 2.5 million tonnes. Exports share declined marginally to 33% in FY22 compared to 35% in FY21.

Improved steel realisations and higher sales resulted in Gross revenues rising by 49% Y-o-Y to INR 55,264 Cr. Standalone EBITDA increased by 15% Y-o-Y to a record INR15,037. EBITDA growth is noteworthy as the year saw a steep increase in coking coal prices and limited benefit accruing due to low cost iron ore inventory as compared to FY21. Record operating profit and declining interest expense contributed in JSPL net profit reaching the highest ever level of INR 8,283 Cr in FY22.

The Pellet production of 7.76mt in FY22 was broadly in line with prior year. However, higher crude steel production resulted in two-third fall in external sales (0.75mt vs. 2.25mt in FY21).

2. Global Ventures

1. Mozambique: Chirodzi mine produced 1.04 MT ROM (+29% YoY) in 4QFY22. Coking coal sales of 157 KT were higher by 22% Y-o-Y and slightly better compared to 3QFY22. The Mozambique operations continued to ramp up production this year and ended FY22 at 4.1 million tonnes ROM (compared to 3.2 million tonnes in FY21). Coking coal sales in FY22 also improved in line with production to 700KT (581KT in FY21). 4QFY22 EBITDA of USD12.7m, although sharply up Y-o-Y, was negatively impacted by approximately USD14m FX loss. FY22 saw Mozambique operations turning profitable with the mine reporting EBITDA of US$57.2m and PAT of US$22m.

2. South Africa: During 4QFY22, Kiepersol mine in South Africa produced 130 KT ROM (-3% YoY). The mine reported sales of 95 KT in 4QFY22 and 407 KT in FY22 (vs. 490 KT in FY21). Better realisations resulted in EBITDA increasing to US$5.3mn for the quarter and US$10.4mn for the year (vs. US$ 6.1mn in FY21).

3. Australia: Post resumption of operations at Russell Vale in the prior quarter, the mine continued to ramp up during 4QFY22. Russel Vale production increased to 125.4 KT compared to 86.1 KT in Q3FY22. However, issues with blending and dispatch resulted in sales declining to 73 KT (95KT in 3Q). Impact of lower sales was only partially offset by higher coking coal prices as WCL (Wollongong Coal Limited) EBITDA declined by 11% Q-o-Q to US$8.3mn (US$9.3mn in 3QFY22). Ramp up of Russel vale mine in the 2HFY22 has resulted in Australian operations ending FY22 positively with WCL reporting EBITDA of US$13.7mn compared to a loss of US$9.6mn in the prior year. Wongawilli colliery continues to remain under care & maintenance.

3. JSPL Consolidated Performance

3.1. Fourth Quarter FY22 Performance

Improved performance across steel and overseas mining operations in 4QFY22, has resulted in JSP reporting the highest ever Consolidated Gross Revenues of INR 16,119 Cr. While the volumes and pricing environment was strong on a y-o-y basis, significant cost headwinds, unfavourable base (due to low cost iron ore inventory in the prior year) and FX losses in overseas geographies resulted in EBITDA declining by 38% Y-o-Y to 3,070 Cr. 4QFY22 Profit After Tax (PAT) declined by 47% Y-o-Y as impact of lower operating profit was only partially offset by declining interest expense. 4QFY22 PAT was also hit by INR406 Cr exceptional, due to write down of assets in India and one off expenses related to certain rehabilitation expenses in overseas geographies.

3.2. Full Year FY22 Performance

Strong FY22 operating performance for the India steel and overseas mining business, helped JSP report a record Consolidated Gross Revenues (Incl. GST) of INR56,921 Cr and Net Revenues of INR51,086 Cr. The Company did well to report a resilient operating performance on the face of severe cost headwinds as FY22 EBITDA was up by 19% Y-o-Y to INR15,513 Cr. Improved operating performance and lower finance cost has resulted in JSP reporting the highest ever Consolidated PAT of INR 8,249 Cr (+28% Y-o-Y) and an EPS from continuing operation of INR80.9 (vs. INR60.3 in FY21).

Company's unflinching focus on strengthening its balance sheet has resulted in consolidated net debt declining further by INR 2,105 Cr in 4QFY22. Over the course of past one year Net Debt has declined by 13,270 Crs to INR8,876Cr (FY21 Net Debt of INR22,146). Net Debt to EBITDA (Trailing) at the end of March'22 stood at 0.57x (vs. 0.63x as on December '2021 and 1.53X in Mar'21). Conclusion of JPL divestment will result in Net Debt declining further, keeping JSP on track to become a Net Debt free Company in FY23.

Given robust operating performance in FY22 and JSP's belief in rewarding its shareholders, the Board is pleased to announce a final dividend of INR2.0/share (subject to shareholder approval). This takes the total dividend to INR3.0/Share in FY22 (300% of face value).

4. Outlook

COVID induced slowdown in China, ongoing conflict in Europe and higher inflation is likely to pose challenges for the global steel demand in the near term. This coupled with continued logistical challenges within the country due to limited rake availability and surging coking coal prices is likely to further increase headwinds for the domestic steel sector. However, structural changes to reduce carbon emissions globally, China's policy to curb steel exports and increased costs due to ongoing geopolitical tensions are likely to provide continued support to steel prices in the long term, in our view.

JSP recorded a resilient performance in FY22 as the company was able to meet its production guidance of 8mt and surpassed the 50,15,15 target (INR50,000Cr of Revenue, INR15,000Cr EBITDA and less than 15,000Cr Net Debt). Notwithstanding near term challenges the Company will aim for 8.5-9.0mt in FY23. With one of the strongest balance sheets to support our growth aspirations, increasing raw material security, and low cost of production, JSP remains well positioned to withstand any cyclical challenges and continue to work on its goal of enhancing stakeholder value.