Seshagiri Rao on JSW Steel Q4 results, export duty & capex plans

“As far as the steel margins are concerned, either on account of cost pressure or on account of prices falling, the margins have come down. Our margins were at a rate of 19.2% and were 23.6% in the previous quarter. So quarter on quarter, it came down over almost close to 4%,” says Seshagiri Rao, Joint MD & Group CFO, JSW Steel.


How is the export duty on steel exports going to impact your company?
There is a correction in the steel prices and in line with that, even Indian steel prices have also come down. In the meantime, we have seen this announcement that the Indian government has imposed an export duty of 15% on various steel products in addition to reducing duties on coking coal and also imposing export duty on export of iron ore.

Overall, the intention is to contain inflation. We all wanted low inflation. In the past, such duties were imposed on steel in 2008 in May. The then government also imposed export duty on export of steel but it was different percentages of the duty on different grades of steel. So higher the value addition, lower is the export duty and that is how it was imposed at that time. But it was there only for a month on the flat products and a few months for long products.

Therefore the imposition of duty and the way I look at it, considering what happened in the past may be a temporary measure with noble intention of containing inflation. We expect inflation will come down in India but if I look at the WPI, the weight of mild steel is only 1.27%. It is not very significant in the overall WPI inflation weighted index. Whatever steps the Government of India has taken, particularly in the steel industry and in the export of steel, hopefully the inflation should come down.

What is going to be the impact of the same on the steel prices in the country? How much have prices in India come down by and how much more is in the offing?
As I mentioned, the steel prices have already started coming down in line with the global prices. Global prices have come down over $100 per tonne. We are seeing a similar trend even in the domestic steel prices.

Another announcement has come about the board approving a corporate action merger of JSW Ispat with itself. What is the rationale and what are the synergies?
As and when we require any financially distressed company, we work on turning around that company. Once our plan to turnaround is nearby or complete, we will bring it into the fold of the parent company. That is what is happening in the JSW Ispat Special Steel Products. We have taken over this company on 31st August 2018. We have spent over Rs 450 crore for turning it around and FY22 was the first year after we took over, that the company had shown a net profit of Rs 9 crore of and also an EBITDA of Rs 490 crore.

This is the time we felt that in order to bring this company into a further growth mode, it is important that we merge into JSW Steel that is why the board of directors subject to necessary approvals regulatory approvals and other approvals both the boards have approved the scheme of amalgamation under Section 230 to 232 of the Companies Act.

There is a holding company which holds the shares of JSW Ispat Special Steel Products Company. Even that holding company is getting merged as a part of the scheme into JSW Steel. In my view, the huge amount of synergies can come down either in terms of raw material integration or in terms of market rationalisation or fixed cost production. Whichever way you look at it, it is a great opportunity for both the companies to grow further.

Going forward, can you talk to your retail investors and the analyst community at large on how you are going to protect your margins?
We have just announced the results. As far as the steel margins are concerned, either on account of cost pressure or on account of prices falling, the margins have come down. Our margins were at a rate of 19.2% and were 23.6% in the previous quarter. So quarter on quarter, it came down over almost close to 4%. But JSW Steel could show in absolute numbers, a good amount of EBITDA because the volume growth was very healthy.

We could sell over 5 million tonnes of steel in the last quarter, 5.13 million tonnes to be precise. It has a growth of over 31% and at the same time, year as a whole, the company has done extremely well. We could reduce our overall inventories quarter on quarter by 3,86,000 tonnes and we had shown 17.62 million tonnes of production and 16.35 million tonnes of sales.

We have achieved almost 95% of our guidance and from that point of view, because of the price fall and very high input cost prices, may be coking coal and iron ore companies’ margins have come down but the absolute amount of EBITDA for the quarter is still at a reasonably healthy level due to good volume growth.

All steel companies have announced a capex over the last year. Does this export duty impact the capex plans of other steel industries as well?
As far as the imposition of export duty and export of steel is concerned, we feel it is temporary. It will be lifted once the inflation situation comes under control. So it is a temporary measure. I do not think any company which is strategic will think about reviewing the capex plans immediately. We will watch the situation as it unfolds, but in the current financial year, the Indian steel demand is expected to be around 7.5%.

That translates to almost 8 million tonnes of incremental production in India. JSW Steel recently commissioned a 5 million tonne capacity expansion at Dolvi; another 5 million tonne is under implementation and will get commissioned in the next financial year. These projects will continue and whatever is going on right now will be implemented. We will take a call on future plans based on how it unfolds.