Prices won't fall beyond this. It's the best time to buy assets: Chandra Shekhar Verma

Interview with Chairman, Steel Authority of India Ltd

The worst is over for the steel industry, says Chandra Shekhar Verma, chairman, Steel Authority of India Ltd (SAIL). In an interview with Mansi Taneja, he says it's the right time to make an acquisition for raw material security. Edited excerpts:

Your sales grew 10 per cent in November. How did you achieve that in a slowdown?

The bad times for the industry are over. It was facing a number of challenges. In 2012, the growth in global steel production was just 0.7 per cent. In January-October, output grew 3.2 per cent. China, which has 45 per cent of the global capacity, also saw an increase in growth to 8.3 per cent in the 10 months in 2013 from 2.1 per cent in 2012. In the domestic market, growth in production in April-November was 5.3 per cent. All these are signals the industry is on a growth path and the problems are slowly getting over. Steel capacity utilisation is 78-79 per cent. So, there is still surplus capacity. All the problems aren't over. But there is a revival.

How far is a full revival?

Things should improve from now. Our fundamentals are strong. The 12th Five-Year Plan (2012-17) has aimed $1 trillion in spending on infrastructure. Per capita use is still low in India at 55 kg a year. It is going up; production is going up. There is demand from the automobile and construction industries. We have seen times when growth was in double digits. Compared to that it is still slow but has started to pick up, a positive signal. And, the prices that were declining have started going up. In the last few months, prices in the international market have gone up $15-20 a tonne. Those steel products in India have gone up Rs 1,500 a quarter. Prices will not go up very high or come down drastically low. One thing we cannot ignore is this is an election year. So, government spending might not be as high as it would be otherwise. We will have to wait and see.

You are eyeing coal mines abroad through International Coal Ventures Ltd (a venture of public sector companies, including SAIL, for buying foreign coking coal reserves). By when would you be able to acquire any asset?

There are four or five good proposals in the evaluation stage. Prices have crashed in the global market and so have valuations; prices won't fall beyond this. It is the best time to buy assets. We are looking at greenfield (new) as well as running mines in Australia, Mozambique and the US. We have appointed technical consultants and investment bankers. We have to be cautious, as we have to see many aspects - logistics, quality, disputes on the site, among many other things. We have to make a right decision at the right time, which has come. We are much ahead of the preliminary stage.

How much have exports risen after the rupee's fall against the dollar? What is the target for the year? Will you now increase focus on exports?

Last year, we had exports of 0.3 million tonnes (mt). This year, our target is 0.78 mt. We will see per tonne realisation for the domestic market and the exports market. If we are getting a higher realisation in the export market, we will definitely concentrate on that. But if we are getting an equal or better realisation in the domestic market, our emphasis will be there as long as we are able to sell products.

How much have input costs increased over the year?

Coal prices have come down to $140-150 a tonne. Last year, the average price was $180 a tonne. We do not buy iron ore from the market because we have our own captive mines. But in the last couple of months, coal prices have gone up slightly, though it's still less than last year's price. So, input prices have fallen in the last year and so have prices. There has been a 15-20 per cent drop in a year.

What's the import situation?

We are importing 10-11 mt of coal every year. Once our expansion is complete, imports will go up to 14-15 mt a year. About two-thirds is from Australia, one-third from the US and some small quantities from New Zealand. We have five-year supply contracts but prices are negotiated quarterly.

How much debt do you have?

The debt-equity ratio is 0.54:1. Debt as of date is Rs 22,000 crore. Net worth is Rs 42,000 crore and the cash balance is Rs 4,000 crore.