India's tier-1 mills see sharp slide in FY23 EBITDA

• Mills report decent performance in production, sales
  
  
• Squeezed margins take toll on EBITDA
  
  
• Q1 likely to be slow, but demand may revive in near term
  
  

Morning Brief: Financial year 2022-23 (FY23) was marked by unprecedented global developments which had strong ramifications on the Indian steel industry. The Ukraine war altered trade flows with both warring nations, key participants in the iron ore, coal and steel space, impacted. Resultantly, raw material prices remained volatile while gas prices and inflation climbed to record levels as countries introduced rate hikes as a fire-fighting tool.

India imposed the export tax on steel, iron ore and pellets to cool down heated up domestic prices in the immediate aftermath of the war and to also secure domestic supplies of the same. Demand see-sawed between low and moderate while mills even had to calibrate production at one point to balance the supply-demand mismatch. The slowdown in demand in Europe and recession worries affected steel prices. That apart, the 15% export duty did impact export sales last year.

But mills, overall, weathered the challenges, especially in terms of output and sales even though four steel majors showed a y-o-y slide in their earnings before interest, taxes, depreciation, and amortization (EBITDA). The drop was possibly due to two reasons. One was the decline in steel prices last fiscal. The SteelMint India Steel Composite has seen a decline from 192.3 points in April 2022 to its lowest point of 145.1 points in December 2022. Over January-March, 2023, it averaged 155.80 points. Secondly, the INR eroded in value, squeezing export realisations. SteelMint goes behind the scene:

Crude steel production up for most mills

Most of the mills reported an increase in crude steel production in FY23.

SAIL: It seems Steel Authority of India (SAIL) overshot its targeted 17-17.5 mnt of crude steel production for FY23. This public sector behemoth reported a 6% increase in production in FY23 at 18.34 million tonnes (mnt) against 17.37 mnt in the previous fiscal. The company said it posted its best-ever production last fiscal.

Similarly, output rose 5% q-o-q to 5 mnt in Q4FY23 against 4.7 mnt in the preceding quarter. The Q4 volume rose 9% from 4.60 mnt in Q4FY22

Tata Steel: This steel major's crude steel production upped 4% in FY23 to its best-ever 19.88 mnt as against 19.06 mnt in FY22. On a y-o-y basis, production rose 5% to 5.15 mnt in Q4FY23. On q-o-q basis, it edged up slightly against 5 mnt in Q3FY23.

JSW Steel: Standalone crude steel production of this integrated major rose a healthy 18% in FY23 to almost 21 mnt, compared to 17.62 mnt in FY23.

On a q-o-q basis, output rose 5% to 5.6 mnt in Q4FY23 from 5.32 mnt in Q3FY23, primarily due to better utilisation of Dolvi phase-II. Q4 output y-o-y was up 12% against 5.01 mnt recorded in Q4FY22.

The company operated with capacity utilisation of 96% in Q4 and 90% in FY23. Better operating efficiency and improved availability of iron ore added to better performance of BPSL.

JSPL: Jindal Steel and Power Limited (JSPL) recorded a marginal 1.50% dip in crude steel production in FY23 to 7.89 mnt against 8.01 mnt in the previous fiscal. In Q4FY23, the same also saw a marginal drop of 2% to 2.02 mnt from 2.06 mnt in the previous quarter. This was primarily driven by unplanned shutdown at its DRI plant in Angul. Y-o-y, Q4 output was down 4% against 2.11 mnt seen in Q4FY22.

AM/NS India: AM/NS India reports its results on a calendar basis, hence its production in January-March, 2023 (Q1CY23) was up a considerable 11% to 1.8 mnt compared to 1.62 mnt in Q4 (October-December, 2022). On a y-o-y basis, Q1 output was up 4% against 1.73 mnt seen in the same quarter in 2022.

Steel sales up

After the initial hiccups in Q1, mills' sales improved in Q2, lost ground somewhat in Q3 to easily regain the same in Q4.

SAIL: Sales at SAIL remained stable y-o-y at 16.20 mnt in FY23 compared to 16.15 mnt in the previous fiscal. However, on a q-o-q basis, sales increased 12% to 4.7 mnt in Q4FY23 against 4.15 mnt in the previous quarter. Sales edged higher due to relatively higher realisations in FY23. Y-o-y, sales were up 13% against 4.17 mnt in Q4FY22.

Tata Steel: This steel major reported a 3% increase in sales at 18.87 mnt in FY23 compared to 18.27 mnt in FY22. Q-o-q, sales in Q4FY23 were up 8.50% to 5.15 mnt compared to 4.74 mnt in Q3FY23. Y-o-y sales in Q4 were stable pitted against 5.12 mnt in Q4FY22.

JSW Steel: Saleable steel sales at this major producer in FY23 were the highest-ever at 19.67 mnt, up 19% compared to 16.52 mnt in the previous fiscal. The same rose 15% on the quarter to 5.68 mnt in Q4 from 4.95 mnt in Q3, led by retail and OEM segments. The company's sales in auto segment grew 7% q-o-q to 6,82,000 tonnes in Q4 and up 36% y-o-y to 2.6 mnt in FY23. Y-o-y, Q4 sales were up 11% compared to 5.11 mnt in Q4FY22.

JSPL: Steel sales by JSPL stood at 7.68 mnt in FY23, almost flat against 7.64 mnt in FY23. However, the same was up 7% at 2.03 mnt in Q4FY23 against 1.90 mnt in Q3FY23. Y-o-y, sales dipped 2% against 2.08 mnt in Q4FY22.

AM/NS India: Steel sales rose 13% q-o-q to 1.80 mnt in Q1 (January-March, 2023) against 1.59 mnt in Q4 (October-December, 2022). Y-o-y, Q1 sales volumes rose 4% against 1.73 mnt recorded in January-March 2022.

EBITDA declines

SAIL: The PSU major reported an EBITDA plunge of 52% y-o-y to INR 9,379 crore in FY23 against INR 22,364 crore in FY22. Q-o-q, EBITDA was up 55% to INR 3,401 crore against INR 2,198 crore in Q3FY23 but down 29% against INR 4,783 crore in Q4FY22.

Tata Steel: The steel major's EBITDA fell 52% to INR 24,931 crore in FY23 against INR 51,848 crore in FY22. Q-o-q, the same was up 52% to INR 8,089 crore against INR 5,334 crore in Q3FY23. However, y-o-y, it was down 35% against INR 12,363 crore recorded in Q4FY22.

JSW Steel: The operating EBITDA touched INR 15,371 crore in FY23, plunging 52% compared to INR 31,868 crore in FY22. Q-o-q the same was up 55% to INR 6,247 crore against INR 4,030 crore in Q3FY23. Y-o-y, the same was down 9% compared to INR 6,907 crore in Q4FY22.

JSPL: The company's adjusted EBITDA stood at INR 8,562 crore in FY23, down 42% y-o-y from INR 14,765 crore in FY22. In Q4FY23, adjusted EBITDA registered a 1% marginal rise to INR 2,178 crore as against INR 2,163 crore in the preceding quarter. Y-o-y, the drop was 18% against INR 2,657 crore in Q4FY22.

AM/NS India: The company reported a q-o-q EBITDA surge of 110% to $341 million in the January-March 2023 quarter compared to $162 million in Q3FY23. The same was down 18% against $470 million seen in January-March, 2022.

Outlook

Q1 looks a tad subdued since market activities have been slow in the current quarter so far and the buzz is, the scenario will sustain till mid-June but revive from the latter half of next month.

From the mills' side, while plates and coated see fairly good offtake, sources tell SteelMint, benchmark hot rolled coils and rebar sales do not look that exciting so much so that mills may be forced to opt for production and price cuts in June as inventory piles up. With global steel prices dropping on weak demand signals emanating from China, and imports gaining traction, the short term does look a bit challenging.