JSW Q3 net halves, sees higher demand in 2012

JSW Steel, India's No. 3 steelmaker, posted a bigger-than-expected 56 percent fall in quarterly net profit on higher raw material costs and foreign exchange losses, and said shortage of iron ore supplies continues to be a major concern.

JSW Steel, in which Japan's JFE Holdings owns about 15 percent, said it expects higher steel demand in 2012 but will be able to sustain operations at the current 90 percent capacity only if iron ore supplies are made available.

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"To sustain production, it is necessary to get relief on iron ore," MVS Seshagiri Rao, joint managing director, told reporters. "Our iron ore stocks will last for another three-four months," he added.

Production at JSW Steel's Vijayanagar plant in southern Karnataka state has been affected since August after India's top court put an interim ban on mining in the state due to illegalities in some mines.

Late last year, the steelmaker cut its production and sales forecast for the current fiscal year by 14 percent and 13 percent, respectively, due to acute shortage of iron ore.

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The company expects steel demand in India to rise by 5 percent in the current fiscal year ending in March, but expects demand to rise further in the second half of 2012.

It hopes to produce between 9.5 to 10 million tonnes in the next fiscal year starting in April, up from the current year's output target of 7.5 million tonnes.

Steel demand in India has been growing at near-double-digits over the past few years, pushing local firms to boost capacity and attracting global steelmakers including ArcelorMittal (ISPA.AS) and POSCO (005490.KS) to set up base in the country.

JFE, the world's fifth-biggest steelmaker, in 2010 bought 14.9 percent of JSW Steel for $1 billion, and has said it would look to further boost its stake in the company.

Q3 PROFIT SLIDES

JSW said its standalone net profit in October-December, its fiscal third quarter, fell to 1.68 billion rupees from 3.82 billion rupees a year ago. Net sales rose 78.6 percent to 57.7 billion rupees.

Analysts on average expected the company to post standalone net profit of 2.6 billion rupees for the quarter.

JSW said sales volume rose 20 percent from a year ago to 1.91 million tonnes during the quarter.

Net margins for the quarter slipped to 15.9 percent from 17.2 percent a year ago, due to a combination of lower selling prices and higher costs, Rao said.

JSW reported foreign exchange loss of 5 billion rupees for the quarter, which analysts mainly attributed to its coking coal imports. The company imports its entire coal requirement.

The Indian rupee was the worst performer among Asian currencies in 2011, losing nearly 16 percent against the dollar and adding to importers' costs.

JSW, which buys its entire iron ore requirement locally, was also forced to pay higher prices for the key raw material at e-auctions sanctioned by India's top court.

JSW has already cut its planned investments in capacity expansion this fiscal year to 40-50 billion rupees from the earlier planned 80 billion, given its lower production. It has planned capex of 50 billion rupees for the next fiscal year.

In 2010, JSW bought a controlling stake in rival Ispat for $476 million, expanding its operations and taking its total steelmaking capacity up to 14.

Shares in JSW Steel, valued by the market at $3 billion, ended down 3.2 percent in a Mumbai market that rose 0.6 percent. The stock lost 57 percent of its value in 2011, compared to a 25 percent fall in the benchmark stock index.