PremiumDespite the headwinds, including an export duty hike and rising cost of coking coal, a majority of Indian steel manufacturers are in a sweet spot, contrary to what analysts say, Seshagiri Rao M.V.S., joint managing director and group chief financial officer, JSW Steel Ltd, said in an interview
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NEW DELHI/MUMBAI : Despite the headwinds, including an export duty hike and rising cost of coking coal, a majority of Indian steel manufacturers are in a sweet spot, contrary to what analysts say, Seshagiri Rao M.V.S., joint managing director and group chief financial officer, JSW Steel Ltd, said in an interview. Rao shared his views on the international and domestic factors that will lead to a conducive demand scenario. Edited excerpts:
Are the valuations of steel companies fair after the announcement of export duty hikes on steel?
I don’t agree with analyst reports at all. They say the steel industry will now be downgraded and there will be a big problem for the sector following the imposition of export duty. The underlying themes that I have been talking about for the last two years are intact. The supercycle mentioned for the last two years is still there. Investments in renewable capacity creations will continue to drive demand. With the Russia-Ukraine war, every country is looking at increasing defence expenditure, which will raise demand. For one reason or other, steel demand continues to be robust. The themes have not changed, so I don’t subscribe to the views of the market or analysts to downgrade the sector.
What is your view on the duration of the export duty hikes?
The export duty hike is a temporary phenomenon and the government had put such a duty even in 2008 when inflation was high. However, the duty was only for a month on flat products and for five months on long products. Taking cues from the past, when inflation was high, generally, the government takes certain fiscal steps. In our view, those are very temporary and once inflation comes under control, those will go.
What about domestic steel demand? Is it enough to offset the impact of export duty hikes? Will it in any way change your capex plans?
It is important to understand our Q4 results. While Ebitda (earnings before interest, taxes, depreciation, and amortization) margin has come down on a consolidated basis by ₹4,300 per tonne sequentially, our absolute Ebitda showed 1% growth. It was possible because of higher volumes. Costs are up 3%, blended realizations have come down by 3%, and Ebitda has gone up by 1% because volume growth was at 31%. That is the story. The story of JSW is about volume growth. We sold 16.35 million tonnes (mt) of steel last year. Of this, we exported 4.5 mt. The remaining was sold in the domestic market. This year, we plan to increase our sales by 3.5 mt.
What factors will drive additional volumes and where is the demand coming from?
The auto industry is seeing good demand, particularly in the PV (passenger vehicle) and MHCV (medium and heavy commercial vehicle) space, which is being led by infrastructure and mining. Second is solar and appliances. We saw very good growth last year and this year. Besides, the government is spending on infrastructure. The allocated capex of ₹7.50 trillion will be spent during this year. If we look at the drivers, we expect incremental demand of 8 mt. We will sell our products in domestic markets and also export. When export realizations were very attractive, we increased our exports to 25%. Even when export realizations had fallen, we exported 15%. Our exports varied between 15% and 25%, and we have never stopped exports in the last 30 years of JSW. Just because export duty has come, we will not stop exports. We will keep serving our customers because developing customers is not easy.
Will you continue to remain Ebitda-positive on the export front?
We do not look at whether we lose some amount of sales or make money. However, as far as overall volumes of sales is concerned, we will be able to meet the 24 mt guidance this year and we will continue to remain positive at the Ebitda level and at net profit levels.
Is there a possibility of an agreement between India and Russia on coking coal supplies at a price beneficial for both, as has been the case in the oil and gas space?
Basically, a rerouting of trade is happening. The trade that used to happen between Russia, Ukraine, Europe, and Japan, among others, is where sanctions have been imposed.
Countries that have stopped buying from Russia are looking at supplies from Australia or Colombia or other places, and this rerouting and establishing logistics will take time.
Russian coal is available to India and other countries that are willing to buy, but it has to be transported. Logistics need to be in place, and that is the problem.
What is your capex outlay for the year and how are expansions progressing?
We allocated capex of ₹15,000 crore last year. We have completed 5 mtpa expansions and we have created 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 expanding our capacities by 9 mtpa.