This is the right time to make investment: Seshagiri Rao, JSW Steel

Demand will be robust and India will quickly recover from Covid impact, he says

JSW Steel is drawing up a growth plan that will take its capacity to 38 million tonnes by 2024 from 23 million tonnes currently. In an interview, Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel, tells Ishita Ayan Dutt that demand will be robust and India will quickly recover from Covid impact. Edited excerpts: 

JSW recorded its best performance in Q4FY21, but steel prices in China appear to be correcting. What is the outlook on demand?

Structurally, the demand is quite strong, including in China. The kind of increase that China has seen, particularly on the commodity exchanges, is majorly driven by speculative buying. That’s why margin requirements are being increased, which has led to some correction. But fundamental factors have not changed.

Is there headroom for an increase in the domestic market?

In China, steel prices are at $1,000-$1,015 a tonne, in the US, $1730 a tonne and northern Europe, $1340 a tonne. The difference between domestic price and landed cost of imports from China is about 20 per cent. Whether prices will increase is anybody’s guess, but Indian prices have, historically, remained at a discount to landed cost of imports.  

Are lockdowns impacting demand?

It is definitely impacting demand. In April, demand fell to 6.7 million tonne from more than 9 million tonne in March. But the comforting factor is, the fall in demand is not as severe compared to April 2020 because it is not a nationwide lockdown. But localized lockdown has an impact on the overall demand.

Indian steel companies have been adjusting with exports since last year. This quarter, exports have picked up again because domestic demand is not that strong. 

Most steel companies used the current cycle to deleverage, what about JSW Steel?

Relative ratios improved remarkably. As of March 31 2020, debt to EBITDA was 4.5x, whereas, as on March 31, 2021, it was 2.61x. Debt to equity was 1.48x and has come down to 1.14x.

In terms of absolute numbers, as of March 31, 2020, the debt was Rs 53,473 crore, which has come down to Rs 52,617 as on March 2021. So there is a reduction of Rs 858 crore in debt. This appears to be small, but this is after the total cash spend by the company in organic and inorganic growth last year, which was about Rs 15,000 crore.

What is the status of the 5 million tonne expansion at Dolvi?

The second wave of Covid has impacted implementation of the Dolvi unit. When Covid hit again in March, we had 18,000 people working at Dolvi. Now, the strength has come down to 7,000 and among them, skilled workers have left. Also, the European and Japanese suppliers who were at the site, left. We could have completed Dolvi by June, but now it will probably be September-end.

You have announced a 5 million tonne expansion at Vijaynagar, is that based on the demand outlook?

We have surplus pellets and coke at VIjaynagar. We have a rolling mill also. But we don’t have hot metal and melt shop. That can be set up quickly at a very good cost and increase the capacity by 5 million tonne.

There are very few players who can create this kind of capacity in the steel sector because of the capital intensive nature of the industry. This is the right time to make investments.

On the demand side, India saw one of the fastest recovery. This was mainly driven by the infrastructure spend. We feel that the demand will be robust and we will quickly recover.

What kind of expansion is planned for Bhushan Power & Steel (BPSL)?

The plant is operating at 2.7 million tonne capacity. In 18 months, it will have a capacity of 3.5 million tonnes, and three years from now, the company will have a capacity of 5 million tonnes.

When will Vijaynagar expansion be completed?

The 5 million tonne will be commissioned in March 2024. In the next three years, across Vijaynagar, Dolvi and Salem units, capacity will be 30.5 million tonnes. If we add, Mingo USA, Bhushan Power & Steel and Monnet, then the total capacity will be 38 million tonnes by 2024.   

You have submitted an expression of interest for Neelachal Ispat, would you explore bidding for other companies on the disinvestment list like NMDC’s steel plant or RINL?

As and when these assets are made available, we will evaluate.

What happened to your bid for Gontermann?

Our proposal was not accepted by the committee of creditors (CoC) and they referred it to the National Company Law Tribunal (NCLT) for liquidation.