Why JSPL Fell 15% in Last Three Days

Shares in Jindal Steel and power (JSPL) fell as much as 8 per cent on Friday to Rs 236.65. The stock has now corrected nearly 15 per cent in last three trading sessions compared to a 5.5 per cent loss in BSE's Metal index during the same period.

Analysts attribute the slide in JSPL's shares to the following three reasons:

1) Disappointing Q4:

JSPL's net profit slumped 28 per cent year-on-year to Rs 402.5 crore in Q4. JSPL registered 16 per cent degrowth in the steel volume and 1 per cent dip in its power volumes.

Mr Ravi Uppal, managing director and CEO of JSPL said profits fell due to higher depreciation and interest cost. There was also a planned shutdown at the Raigarh plant which weighed on JSPL's profit, he said.

2) Capex Raise:

JSPL raised its fiscal 2015 capital expenditure guidance by 65-100 per cent to Rs 5,000-6,000 crore as compared to earlier projection of Rs 3,000 crore. This means JSPL will have to raise fresh debt, which will translate to a higher debt/equity ratio for next four to six quarters.

Analysts say it will be a tough task for JSPL to service the increased debt given the fact that interest rates are at three year high and sales volume has been sluggish.

3) Orissa ore issue:

JSPL is largely dependent on iron ore supplies from Sarda mines in Orissa, whose environmental clearance expired in March 2014. The Orissa government has directed production from the mines to be stopped. Production from these mines will be stopped if the Supreme Court bans iron ore mining in Orissa.

JSPL says that it has inventories for 6-7 months from its mines in Raigarh.

Shares in JSPL closed 6.36 per cent lower at Rs 239 compared to a flat close in Nifty.