Financial results in H2FY23 will be better than first half: JSW Steel's Rao

In a Q&A, the Jt MD and CFO of the company says the worst is over as higher volumes, better demand and lower raw material cost play out in the coming quarters

JSW Steel logged a consolidated net loss of Rs 848 crore in Q2FY23, due mainly to a slump in steel prices and global headwinds. In a conversation, JSW Steel joint managing director and group chief financial officer, Seshagiri Rao, tells Ishita Ayan Dutt that the worst is behind as higher volumes, better demand and lower raw material cost play out in the coming quarters. Edited excerpts:

JSW Steel’s loss in Q2 was unexpected. Is the worst over?

Yes, I think so. For one, demand in the second half will be much better. Then, the raw material prices corrected in Q2, the benefit of which will come in Q3 and Q4, so costs will be lower. And we have completed our expansion at Bhushan Power & Steel (BPSL) from 2.75 million tonnes (mt) to 3.5 mt, so more volumes will come. There is a possibility of more volumes from the Dolvi expansion, which operated at 80 per cent capacity the last quarter.

Also, the plant at Vijaynagar and BPSL could not operate at full capacity last quarter because of non-availability of iron ore. All these reasons are behind us. Therefore, I feel, the second half financial performance will be better than the first half.

Coking coal prices have come off from peak levels. Is the benefit going to flow in Q3?

From Q2 to Q3, it will come down by $80 a tonne.

What kind of additional volumes are expected?

We had given a guidance of 25 mt (on production). Out of this, we have achieved 11.56 mt for the first half. We will achieve the guidance that we have given for FY23.

But we may not be able to achieve the 24-mt sales growth target unless we reduce the inventories. We have done 10.4 mt sales in H1 and will be very close to our guidance.

What is the current inventory level?

As on September 30, the inventory is 1.856 mt as against 2.89 mt on June 30.

Have you changed your product-mix in the export market to align with the export duty?

We are exporting a little more semis than previously. But at the same time we are not denying any order because there is an export duty. We continue to export to our regular long-term, strategic customers.

Your exports have fallen by more than 60 per cent YoY, would it impact your expansion plan?

As far as the export duty is concerned, it is a temporary measure and it will go. The objective of imposing duty was to contain inflation.

If we look at how much steel contributed to inflation, in April, it was 27 per cent which came down to 4.5 per cent in September. These are numbers given by the government. But if you look at the market, flat steel product price, according to SteelMint, is down by 14 per cent in September YoY. There could be a lag in the government numbers being reported.

So, steel is not contributing to the inflation and there is a justification for non-continuation of export duty. Therefore, it should not hamper the capital expenditure programmes of companies taking into account either the India growth story or overall global situation in the long-term.

You have a plan of adding 10 mt by FY25. Will you delay its commissioning to the extent that export duty prolongs?

India requires 10 mt of domestic consumption every year the way we are growing. We are looking at a shortage of steel if we don’t create capacities. That is where JSW Steel scores over others. We are doing aggressive expansion particularly when there is a down cycle. This capacity will be very useful in 2024-2025 when the global problems get normalized and Indian growth accelerates further.

Where are steel prices headed?

At the current levels of coking coal, iron ore or scrap, there is very little chance of steel prices coming down and production continues to remain at these levels. Therefore, steel price reduction may not happen. But the factors to watch out for are demand from China and how the rest of the world behaves. But overall I don’t see a big downside to steel prices.

The year 2016 was a bad year for the sector. Are companies better placed to withstand headwinds?

Definitely, balance sheets are much stronger. The loss is mostly related to inventory (Rs 1083 crore) and FX (Rs 334 crore). Whether they will continue in the future or not is anybody’s guess.

When costs fall, inventory losses will be there to some extent even in the future. As far as FX is concerned, if you look at the fundamental factors then it does not justify further rupee depreciation.