 "JSW Steel moves up the value chain for stability in performance")
JSW Steel, the flagship company of over $11 billion JSW Group, is expecting more stability in its performance with increase in volume of value added products once its proposed investment of Rs 7,000 crore is completed by next year, said Seshagiri Rao MVS, joint managing director and Group CFO of the company.
The company is looking at bidding for more iron ore mines as and when they come up for auction, and would go for 100% supply of iron ore from captive mines, he said.
Speaking on the sidelines of CostCongress, organised by CII here, during the current year, the company is investing close to Rs 4,300 crore on various items and plans to invest around Rs 2,700 crore next year.
While the company has recently completed adding 4 million tonne capacity to existing 14 million capacity, bulk of the investment will not be on increasing the total capacity, but on moving higher on the value chain, such as capacities for tin plate. There are also cost improvement projects like water pipeline, conveyors, and others.
"The investment will improve margins since we are moving up in the value chain to the high end. Around 34% of our total product mix is value added products and we want to increase it by another two per cent," he said.
"If it is a commodity graded steel, the price is subject to volatility. You have to differentiate yourself and will help to reduce volatility. It will also give incremental earnings before interest, taxes, depreciation, and amortisation (Ebitda)," he added.
The company has won five out of seven mines auctioned in Karnataka and two mines will be operational by March and another three by December 2017. The company require approximately 22 million tonne iron ore in Karnataka and with the five mines, it will supply around 4.7 million tonne. With this, around 20% of its requirement will be captive once it's operational.
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While it may not gain much on the cost side, because the premium it paid to the government in the auctions is significant, with the Karnataka mines, the company will have reliable sources next door. In a long term it may have an impact, since once the company has captive mines, it can take several steps to reduce the cost of mining, transportation and others, which will reduce the overall cost.
There are a lot of mines in Karnataka and Odisha and the company expects more mines to come in.
"We expect more mines will come in for auction and of course, we will bid. The competitive advantage of India is the iron ore, we don't have the coking coal. We want 100% captive in iron ore. As and when auctions come in, we will participate," said Rao.
This year JSW Steel is expect to achieve 25% growth. Last year its sales were 12.25 million tonne, this year it is expected to achieve 15 million tonne.
Commenting on the impact of demonetisation, he said that there is some impact on the retail segment, and product-wise, the TMT bar used in constructions has been affected. However, the company's supply to original equipment manufacturers and exports has not been affected and it is expected to achieve the guidance of 15.75 million tonne production and 15 million sales during the year. It is also expecting the retail growth also to pick up in the next quarter.
Exports are currently at 22% and we expect the exports to go up compared to last year. Export prices went up, which helps us to export more.