New Delhi/Mumbai JSW Steel joint managing director and group chief financial officer Seshagiri Rao MVS, according to analysts, despite adverse conditions including hike in export duty and rising cost of coking coal, most Indian steelmakers are in a sweet spot. Ltd said in an interview. Rao shared his views on international and domestic factors that would lead to a favorable demand scenario. Edited excerpt:
Is the valuation of steel companies fair after the announcement of increase in export duty on steel?
I do not agree with the analyst reports at all. He says that the steel industry will now be downgraded and after the imposition of export duty, there will be a big problem for the sector. The underlying themes that I have been talking about for the last two years remain intact. The supercycle mentioned for the last two years is still there today. Investment in renewable capacity building will continue to drive demand. With the Russo-Ukraine war, every country is considering increasing defense spending, which will increase demand. For one reason or the other, the demand for steel remains strong. The topics have not changed, so I do not subscribe to the views of the market or analysts to downgrade this area.
What is your view on the period of export duty hike?
Export duty hike is a temporary phenomenon and the government had imposed such duty in 2008 also when inflation was high. However, the duty was only for one month on flat products and for five months on long products. Taking cues from the past, when inflation was high, the government usually takes some fiscal measures. In our view, they are very temporary and once inflation comes under control, they will go away.
What about domestic steel demand? Is this enough to offset the impact of the export duty hike? Will this change your capital expenditure plans in any way?
It’s important to understand our Q4 results. While the Ebitda (earnings before interest, tax, depreciation and amortization) margin declined on a consolidated basis. 4,300 per tonne sequentially, our absolute EBITDA showed an increase of 1%. This was made possible due to the high quantity. Costs increased 3%, mixed receivables decreased 3%, and EBITDA increased 1% as volume growth was 31%. That’s the story. JSW’s story is one of volume growth. We sold 16.35 million tonnes (MT) of steel last year. Of this, we exported 4.5 million tonnes. The rest were sold in the domestic market. This year, we plan to increase our sales to 3.5 million tonnes.
What factors will drive the excess volume and where is the demand coming from?
The auto industry is witnessing good demand, especially in the PV (passenger vehicle) and MHCV (medium and heavy commercial vehicle) space, which is being led by infrastructure and mining. The second is solar and appliances. We saw great growth last year and this year. Besides, the government is spending on infrastructure. allocated capital expenditure of 7.50 trillion will be spent during this year. If we look at the drivers, we expect an incremental demand of 8 million tonnes. We will sell our products in domestic markets and also export. When export receipts were very attractive, we increased our exports to 25%. Even when there was a fall in export receipts, we still exported 15%. Our exports vary between 15% and 25%, and we have never stopped exporting in the last 30 years of JSW. Just because export duty has come, we will not stop exports. We will continue to serve our customers because developing customers is not easy.
Will you remain Ebitda-positive on the export front?
We don’t see that we lose some sales or make money. However, as far as total sales volume is concerned, we will be able to meet the guidance of 24 million tonnes this year and we will remain positive on EBITDA level and net profit levels.
Is there a possibility of an agreement between India and Russia at a remunerative price for both the supply of coking coal, as in the oil and gas sector?
Basically, a re-route of business is taking place. The trade that used to happen between Russia, Ukraine, Europe and Japan is where the sanctions have been imposed.
Countries that have stopped buying from Russia are looking at supplies from Australia or Colombia or other places, and setting up this re-route and logistics will take time.
Russian coal is available to India and other countries that are willing to buy, but have to transport it. Logistics has to be in place, and that’s the problem.
What is your capital expenditure outlay for the year and how are the expansions progressing?
We allocated capital expenditure of 15,000 crore last year. We have completed 5 MTPA expansion and we have taken up downstream projects. For FY23, we are spending 20,000 crore-18,000 crore for JSW Steel; 2,000 crore for Bhushan Steel and Power. From 26 MTPA at present, we are increasing our capacity to 9 MTPA.