“There are not many players expanding capacity. So, if you can create capacity by the time the industry looks up, maybe after 2-3 quarters, we are fine,” Rao said.
Although steel prices have come off by a good 20-22% over the last one year and demand remains somewhat subdued, JSW Steel doesn’t plan to slow down. MV Seshagiri Rao, joint managing director and group CFO, says his firm will not recalibrate capex plans of close to Rs 49,000 crore by FY21. Should the acquisition of Bhushan Power and Steel go through, the steelmaker will have a total capacity of 21 million tonne, making it the country’s biggest producer. “There are not many players expanding capacity. So, if you can create capacity by the time the industry looks up, maybe after 2-3 quarters, we are fine,” Rao said.
Despite the “over cautious” lending environment, Rao believes he will be be able to fund the expansion through a mix of debt and internal accruals. The tight regulations, he pointed out, were making it difficult for companies to borrow from banks. Moreover, the paucity of options in the corporate bond market had made it impossible to raise 10-15 year money. “Whether it’s insurers, mutual funds or pension funds they do not have cash flows to lend beyond three years,” Rao said, adding the severe restrictions on ECBs were also making it hard to tap the overseas markets.
JSW Steel is looking to produce an estimated 16.95 million tonne in FY20, only 1.5% more than the previous financial year. With production having been trimmed, global steel prices are unlikely to fall further though prices of iron ore could correct further. Consequently, there’s unlikely to be much more margin pressure, Rao said, since producers, including those in China, are losing money.
Domestic demand for finished steel is estimated to grow at a lower 7.1% in 2019 versus 8.3% in 2018. “Today, there is a slowdown everywhere, starting from furniture-making, to drums and barrels, to metro stations,” Rao said. The problem was being exacerbated because contractors were not being paid on time causing a disruption in the supply chain and hurting suppliers of materials like JSW Steel.
JSW Steel’s consolidated net profit fell nearly 57% year-on-year to Rs 1,008 crore in April-June 2019 on high finance costs with the operating Ebitda coming off sharply by 27% y-o-y to Rs 3,716 crore. Revenues during the quarter declined over 3% y-o-y to Rs 19,812 crore. The company’s consolidated net debt stood at Rs 47,767 crore as on June 30, 2019, versus Rs 45,969 crore at the end of March 2019. JSW Steel’s crude steel production was up 3% y-o-y in Q1FY20 to 4.24 MT while steel sales declined 2% y-o-y and 13% q-o-q in Q1FY20 to 3.75 MT.