 "Our debt is not a problem, perception is making it look like one: Seshagiri Rao")
JSW Steel continues to see the domestic market as its main area of business, despite subdued demand. Seshagiri Rao, joint managing director and group chief financial officer, also says their debt burden is eminently manageable. Edited excerpts from an interview with Aditi Divekar:
How has the rupee depreciation impacted your export plans?
We have not vacated our domestic position to increase exports. Our focus will remain on the domestic market and if the domestic demand pie goes up, we will increase our capacity to cater to it. However, at present, demand growth for steel is flat in the domestic market. JSW Steel has been consistently present in the export market since the 1990s. Due to this, there is already a brand name, along with a large customer base, for the company abroad. The recent depreciating rupee only strengthened our export earnings further and worked to our advantage. The three-million-tonne export target set for FY14 is an increase of a million tonnes from last year but this has come largely from incremental production.
Global demand is seen growing by 3.1 per cent (45 million tonnes) to 1,475 mt in 2013, says the World Steel Association. However, not all countries will be participating in this demand growth story, as Europe continues to be in de-growth mode. The incremental demand is largely seen coming from China and the US. Also, in the US, the automobile and energy sectors are expected to drive steel demand. Since JSW is mainly into flat products, the company can target exports to the market there. Due to shale gas development in the US, demand for steel has also increased in the energy segment and this can be a good opportunity for Indian steel makers.
Your US plates and pipes mill was not doing well last year, due to slowdown in that country. What are your long-term plans for this facility? Are you looking to sell the mill?
There are no plans to sell the US mill even in the long term. It has a lot of potential and turnaround of the unit is important for us. We are hopeful the pipe order book will improve, since demand from the US energy sector looks strong. We plan to push up the capacity utilisation to 45-50 per cent in a year, from the current six per cent for pipes and 37 per cent for plates. One big order for the pipes mill and we will be fine. We have been giving bids for pipes projects in the US.
Your high debt burden must be a big concern. How do you plan to tackle it?
Debt is not a problem for JSW Steel. It is the perception and not facts which are making the debt look like a problem. If you look at the debt burden of companies in the domestic as well as global market, we are not out of tune with others. The debt has to be looked at with reference to the installed capacity and not just the figure. For a company with 14.3 mt capacity and turnover of Rs 60,000 crore, debt of Rs 30,000 crore is not a problem. Our focus, however, is to lower the debt to equity and debt to Ebitda (operating earnings) ratios.
What are your plans for JSW Ispat?
We see huge potential. Once the coke oven and pellet plant come on stream this financial year, we will look for expansion at Dolvi in FY15. By then, hopefully, India’s infrastructure boom will have started. In FY15, we will get a direction to go ahead.
How has the rupee depreciation impacted your export plans?
We have not vacated our domestic position to increase exports. Our focus will remain on the domestic market and if the domestic demand pie goes up, we will increase our capacity to cater to it. However, at present, demand growth for steel is flat in the domestic market. JSW Steel has been consistently present in the export market since the 1990s. Due to this, there is already a brand name, along with a large customer base, for the company abroad. The recent depreciating rupee only strengthened our export earnings further and worked to our advantage. The three-million-tonne export target set for FY14 is an increase of a million tonnes from last year but this has come largely from incremental production.
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The fall in demand was a big dampener for the global steel industry. Experts now expect a gradual economic recovery in Europe. What’s your assessment?
Global demand is seen growing by 3.1 per cent (45 million tonnes) to 1,475 mt in 2013, says the World Steel Association. However, not all countries will be participating in this demand growth story, as Europe continues to be in de-growth mode. The incremental demand is largely seen coming from China and the US. Also, in the US, the automobile and energy sectors are expected to drive steel demand. Since JSW is mainly into flat products, the company can target exports to the market there. Due to shale gas development in the US, demand for steel has also increased in the energy segment and this can be a good opportunity for Indian steel makers.
Your US plates and pipes mill was not doing well last year, due to slowdown in that country. What are your long-term plans for this facility? Are you looking to sell the mill?
There are no plans to sell the US mill even in the long term. It has a lot of potential and turnaround of the unit is important for us. We are hopeful the pipe order book will improve, since demand from the US energy sector looks strong. We plan to push up the capacity utilisation to 45-50 per cent in a year, from the current six per cent for pipes and 37 per cent for plates. One big order for the pipes mill and we will be fine. We have been giving bids for pipes projects in the US.
Your high debt burden must be a big concern. How do you plan to tackle it?
Debt is not a problem for JSW Steel. It is the perception and not facts which are making the debt look like a problem. If you look at the debt burden of companies in the domestic as well as global market, we are not out of tune with others. The debt has to be looked at with reference to the installed capacity and not just the figure. For a company with 14.3 mt capacity and turnover of Rs 60,000 crore, debt of Rs 30,000 crore is not a problem. Our focus, however, is to lower the debt to equity and debt to Ebitda (operating earnings) ratios.
What are your plans for JSW Ispat?
We see huge potential. Once the coke oven and pellet plant come on stream this financial year, we will look for expansion at Dolvi in FY15. By then, hopefully, India’s infrastructure boom will have started. In FY15, we will get a direction to go ahead.