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JSW Steel Net Falls on Losses at Unit, Higher Plant Costs

JSW Steel Ltd. (JSTL), India’s third-biggest producer of the alloy, reported a 3 percent drop in fourth- quarter profit due to higher costs at its biggest factory in Karnataka state and a loss at unit JSW Ispat Ltd. (JSWI)

Group net income fell to 7.7 billion rupees ($143 million) in the three months ended March 31 from 7.94 billion rupees a year earlier, the Mumbai-based company said today. The median profit estimate of 28 analysts surveyed by Bloomberg was 5.17 billion rupees. Sales climbed 41 percent to 102 billion rupees.

JSW Ispat posted a net loss of 1.41 billion rupees in the last quarter, compared with a profit of 704 million rupees a year ago, according to an exchange filing. The cost of production rose as iron ore quality and output fell in the state after the nation’s top court banned mining in August.

“JSW Ispat is a good buy from the long-term strategic point of view,” Chairman Sajjan Jindal said at a media conference in Mumbai after the earnings, referring to JSW Steel’s acquisition of the company in December 2010 for 21.6 billion rupees. “The turnaround of the company has been impacted due to a shortage of iron ore and gas. It should happen by the end of next year.”

JSW Steel shares fell 1.2 percent to close at 619.75 rupees in Mumbai. The stock gained 22 percent this year, compared with a 4.9 percent increase in the key Sensitive Index.

Costs, Debt

Total costs in the quarter jumped 49 percent to 90 billion rupees, including a 14 percent gain in raw material costs, according to the statement. The group, which has a net debt of 157 billion rupees, incurred a one-time foreign-exchange gain of 2 billion rupees.

The drop in income was partially countered by a 26 percent surge in output on higher capacity and an 18 percent decline in coking coal costs. The company expects to produce 8.5 million tons of crude steel and sell as much as 9 million tons of finished steel this fiscal year, Jindal said.

The 10 million-metric-ton a year factory in Karnataka operated at less than 70 percent of capacity in March, compared with 90 percent in January. The Supreme Court on April 20 asked 45 iron ore mines in Karnataka to seek government approval to resume operations before lifting a ban imposed in the state following environmental violations. The court had halted mining in the Bellary region in July and extended the ban to two other districts the next month, cutting ore supplies.

Ore Auctions

In August the court allowed NMDC Ltd. (NMDC), India’s largest iron ore miner, to produce as much as 1 million tons of ore a month. The court in September also ruled that fresh output and inventory of the commodity will be sold through only online auctions.

In a separate case, the court on May 11 ordered an illegal- mining probe against JSW Steel and a former chief minister of Karnataka state. The Central Bureau of Investigation must probe violations by B.S. Yeddyurappa and allegations of payments made by JSW Steel to him and his family, according to the order.

The court case follows a 25,000-page report in July by Santosh Hegde, Karnataka’s then anti-corruption ombudsman, citing breaches in mining norms that may have cost the southern state 160 billion rupees in revenue losses.

“JSW Steel is a victim of illegal mining,” Jindal said. “The group will cooperate with the agencies in whatever way required.”

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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