Auto demand isn't pent-up, has really come back: JSW Steel's Seshagiri Rao

In a Q&A, the firm's jt MD and group CFO is confident that steel demand will sustain but is sure that the 15-16 mn demand already lost won't be recovered

In a seasonally weak quarter, JSW Steel rebounded from a loss of Rs 582 crore in the June quarter with a consolidated net profit of Rs 1,595 crore in September. In an interview, JSW Steel’s joint managing director and group chief financial officer, Seshagiri Rao, tells Aditi Divekar and Ishita Ayan Dutt that there has been a recovery from May onwards with year-on-year growth in some segments. Edited excerpts:

Q. JSW Steel saw an increase in top line in the July-September quarter. Was this pent-up demand?

A. Indian steel demand in Q1 fell by 50 per cent, whereas in Q2 it fell by 10 per cent. Even in September 2019, steel consumption in India was at 8.5 million tonne as against September 2020 consumption at 8 million tonne. So, the domestic market is almost there with regard to recovery in steel demand. The only difference is between flat and long products; long products were down due a seasonally weak demand since construction activity was subdued, whereas flat has done well. We are seeing a recovery from May onwards but the surprising thing was auto demand, which really came back without commercial vehicles doing well. Two wheelers and passenger vehicles are doing quite well.
 

The increase in volumes is close to 400 per cent in sales to the auto sector. While we are reasonably confident that this is not pent-up demand, the rural economy is strong and resilient. Agri instruments, tractors and consumer durables have also been good.

Q. Was there a year-on-year increase in sales to the auto sector?

A. Year-on-year growth was 33 per cent, quarter-on-quarter 400 per cent. If we compare with auto sales in the best quarter (which was probably Q4 of 2018), we are at 80 per cent of that level.

Q. Do you see domestic steel demand sustaining?

A. Sustainability is not a problem. The only question is whether the 15-16 million tonne that the industry lost in the initial part of the year can be recovered in Q3 and Q4. My sense is, it is definitely a no. We will not be able to recover the 15 million tonne in Q3-Q4, but recovery of demand in the quarters will not be an issue for the industry.

Q. When will you see full benefits of the captive iron ore mines in Karnataka and Odisha?

A. We have four mines in Odisha that are operational. The environmental clearance we have here is for 29 million tonne of the total resource of 1.1 billion tonne. With this, we can meet the requirement of Dolvi even when it goes to 10 million tonne in March 2021; the 17 million tonne ore requirement can come entirely from Odisha mines. Even for the 1 million tonne Salem plant, it can come from Odisha entirely. But as on date, we are not able to get the entire requirement from Odisha due to the logistics issue. By next year, however, for Dolvi and Salem we can rely on Odisha.

In Karnataka, out of the nine mines, eight are operational. At Vijaynagar, 7-8 million tonne ore out of 22 million tonne of requirement, will be captive. So, 35 percent of requirement at Vijaynagar is met from captive and balance we have to buy in the market. Vijaynagar will remain at 35 percent until new mines are auctioned in Karnataka. In terms of cost, from short to medium term perspective we do not see much change but this arrangement will ensure ore supply to the plants.

Q. The final hearing for Bhushan Power & Steel (BPSL) is on November 3, 2020, what are the top 2-3 things you plan to do once business is handed to JSW Steel?

A. The resolution plan would be implemented for Bhushan Power once we take control of the company. There is a turnaround plan, which also includes capex, but we cannot share details as the resolution plan is subjudice.

Q. Would you look at a partner for BPSL?

A. We do not plan to consolidate this business in JSW Steel balance sheet; there is a proper roadmap on how we plan to go about it. We will share the plan once we implement it.

Q. Your overseas operations have not been performing on a consistent basis, do you still plan to keep these assets?

A. All the three (two in the US, one in Italy) are strategic assets. We are seeing operating losses come down gradually at these operations. This time in the September quarter, the operating loss for all three locations put together was Rs 213 crore. We are looking to contain the operating loss at Rs 200 crore. To the extent of operating losses, these assets are getting affected, but otherwise they are operating on their own.