JSW Steel to revamp ailing US factory

With a new CEO to look after its dismal US operations and some enquiries there about new orders, JSW Steel is hoping to increase its American production four-fold by the end of 2011-12.

The US plant has been operating at a meagre 10 per cent capacity utilisation for some years. It is the first time the company is looking at increasing the output. Seshagiri Rao, joint managing director and the group’s chief financial officer, told Business Standard, “Now, there are inquiries for our products (plates and pipes) and it may take some more time before we get a big order, where we can increase the capacity utilisation.” Adding: “There is no possibility to diversify our product range and getting good orders is the only way forward. For that, we have appointed a new CEO for US operations.”

Rajiv Garg, who was earlier looking after JSW USA, has moved on to an advisory role with JSW Steel.

The US plant is servicing small projects and does some spot-based selling. Rao said, “We are seeing some action in the area and hope that things should improve in the next fiscal. We hope to use 40 per cent of our capacity in the US by the end of next (financial year).”

The company has been putting together a robust sales team and is already seeing some results. Rao said there were a lot of inquiries in the pipeline and they have to be converted into orders. “Based on that, our capacity should double in the next two quarters and should eventually reach 40 per cent by the end of the year,” he said.

The US operations have been a drag on the books of the company. With the hoped-for, four-fold increase in production on the back of bigger orders, JSW Steel hopes the plant should break even at the profit after tax level. Rao said, “At the profit after tax level, the company is not making any money. It has an interest outgo of $25 million per year and depreciation of $30 m. To break even at the profit before tax level, we should have an earning before interest, tax, depreciation and amortisation (Ebitda) of atleast $55 mn. This means capacity utilisation at the pipe factory should be 33 per cent.”