JSW Steel Q1 net seen surging

According to a poll of six brokerages,JSW Steel is set to more than double its June-quarter consolidated net profit to 4.8 billion rupees on a 41 percent increase in net sales of 56.3 billion.

Standalone profit is likely to rise nearly 46 percent to 4.96 billion rupees on a 38 percent increase in net sales to 53.6 billion rupees.

The undertone will be positive for JSW Steel for the June-quarter,said Giriraj Daga,analyst with Khandwala Securities.

They had raised prices in the quarter on expectations of higher raw material costs but they already had low-cost inventory from last year so profitability will be higher,he added.

Operating margin is set to rise 553 basis points to nearly 23 percent in April-June,Angel Broking said in a pre-earnings note.

But the near-term outlook was bleak on likely impact of higher input costs and subdued steel prices,he said.

Credit Suisse,which has an ‘underperformer’ rating on the stock,expects earnings to be impacted on further cuts in steel prices and its high raw material usage by the company.

Focus of investors would shift to concerns of weakening demand,excess capacity and impact of raw material price increases,Kotak said in a pre-earnings report.

We expect fiscal Q2 to be materially weaker as companies bear the impact of lower steel prices and raw material price increase,it added.

Spot prices of the key steelmaking ingredient -iron ore- have risen strongly on voracious demand from the world’s top consumer China,increasing costs and earnings volatility for steel makers around the globe.

Unlike Tata Steel and Steel Authority of India,who have their own mines,JSW Steel is more vulnerable to the pricing system change due to its higher reliance on outsiders for raw material supplies.

Investors are also keen to know about the company’s fund raising plans,which it will announce on July 27 along with the results.

A source with direct knowledge of the matter told Reuters last week the company will announce an investment in it by Japan’s JFE Holdings on July 27.

Of the 31 analysts covering the stock,24 have rated it as a ‘buy’ or a ‘strong buy’ while only 3 have an underperform rating on it. Four brokerages have rated it as ‘hold’.

Shares in the firm have fallen 14 percent in the April-June quarter and analysts expect to see some sell-off after the results. Shares have risen over 12 percent in July so far on expectations of robust earnings and its fund raising plans.

For the short-term I’m seeing some pressure on the stock,Khandwala’s Daga said. It will be a ‘sell-on-news’ type of situation on July 27. Majority of the good news on results and fund raising has already been factored in by the market.