JSW Steel has reported a higher net profit of Rs 578.32 crore in the first quarter of financial year 2011-12, on a stand alone basis, in comparison to Rs 350.27 crore in the corresponding quarter last year. A growth of 65%. During Q1 FY2011-12, the company achieved the highest ever quarterly production of crude steel, amounting to 1.684 million tonnes. Production volume grew by 7% in crude steel, 9% in rolled flat products, and 11% in rolled long products relative to that of corresponding quarter of previous year. The company achieved a significant growth of 44% in sales volume, and 52% in net sales value, compared to that of the corresponding quarter of previous year.

Getting into details, the turnover and net sales for the quarter stood at Rs 7,626.91 crore, and Rs 7,064.57 crore respectively, showing a growth of 51% and 52% over the corresponding quarter of previous year. This was mainly due to higher volume and improved sales realisation. Said Mr Seshagiri Rao, Joint Managing Director & Group CFO, "We have come out with great results in Q1 FY12 despite the sluggish condition in the steel industry. We have also brought down our inventory by selling more."

JSW Steel's increase in sales volume was aided by liquidation of previous quarter inventory. The company sold 128,000 tonnes of previous quarter inventories, bringing the inventory levels down to 49800 tonnes. Steel production growth remained flat on a quarter-to-quarter basis at 1.57 million tonnes. Touching upon the contribution of JSW Steel subsidiaries and associates, Rao mentioned that the Chile iron-ore mines, during the quarter, made shipment of 0.19 million tonnes of iron ore concentrate, and earned EBIDTA of US $ 11.53 m. While the utilisation of these mines has gone up to 75%, during the same quarter, the US coal mines, added Seshagiri Rao, got the statutory Department of Environmental Protection (DEP) permit for commencing mining. DEPs for other mines are being pursued. Having sold 9000 net tonnes of coal during the quarter, the US coal mines will start supplying JSW Steels' Indian operations with cooking coal from next month.

Having commissioned Black Furnace 4 recently at the Vijayanagar plant, Rao stated that his company has completed the Rs 3.2 million expansion, and by August or September this year, the furnaces will reach full capacity. While the coking coal mine in the US is expected to contribute to JSW Steel's bottomline from Q2FY12, the CRM complex work is on schedule. The incremental projects are close to commissioning. Apart from the commissioning of Blast Furnace 4 mentioned above, and Sinter Plant 4, in July 2011 as part of the company's 3.2 mtpa expansion project at Vijayanagar, the incremental projects including the pellet plant 2 of 4.2 mtpa at Vijayanagar works, which commenced in July 2011, are on schedule. The pellet plant is, in fact, under trial run.

The implementation of another 330MW captive power plant, second phase of beneficiation, and phase II of HSM 2 at Vijayanagar facility are progressing satisfactorily. Work on phase 2 of blooming mill at Salem plant is also progressing satisfactorily, according to Rao. This, and the other projects under implementation are expected to be commissioned in FY12.

In the process of financing the West Bengal project announced last year, the company is close to announcing the closure of loans in Ispat Steel. Market regulator Sebi cleared the acquisition of Ispat Industries by JSW Steel in March this year, paving the way for the acquirer to make a fresh offer for buying up to 20 per cent stake from public shareholders. Remarking that it was essential to make the (Ispat) company profitable, Rao said that they were working on three to four areas. "Sales rationalisation is complete, and we have been partially successful in re-financing the debt." Having reduced the working debt, the debt in case of Ispat, is to be divided into two parts.

Drawing attention towards JSW Steel perceived as non-integrated, Sheshagiri Rao averred that backward integration is the major strategy of the company. "We are working at a lot of opportunities," he added. Supplying special grade of steel to the manufacturer of Honda Brio's crankshaft, according to Jayant Acharya, Director - Commercial & Marketing, the company's decision to change the coal constitution offered some cost benefit. He drew attention towards the rise in cooking coal prices, followed by a correction that led to margin neutralisation. Said Rao, that the company used 16% coal lumps, and 84% fines.

Touching upon the availability of iron ore, and the evaluation of iron ore mines in Karnataka, Rao added that 50 mines out of the 99 mines in Karnataka have been closed. Only 12 to 13 mines are currently under operation, and is resulting in a supply of 29 to 30 tonnes. Out of the 42 million ton iron ore mined in FY2009-10, 28 million tonnes was exported. After the steps taken by the government, the production fell by 9 to 10 million tonnes, and exports went down by 7 million tonnes in FY10-11. The 29 to 30 million tonnes currently produced is likely to lead to a shortfall. Requirement is pegged at 33 million tonnes.

If shortfall in iron ore production out of Karnataka mines is a matter of concern for the steel industry, it is the hike in interest rates that is adding to its burden. "The 0.5% increase by RBI is surprising," commented Sheshagiri Rao. "This will put more burden on industry margins," he concluded.