JSPL reported an improvement in their plant load factor (PLF) from 81 percent to 99.5 percent in fourth quarter-ended March on a quarter-on-quarter basis.
"JSPL has been building up their steel inventory expecting an up tick in demand. However, realizations of steel in the fourth quarter were low due to low liquidisation. The company had to sell huge inventory in the Q4," said Sushil Maroo, deputy MD, JSPL in an interview to CNBC-TV18.
The company reported high depreciation and operational cost due to plate mill. JSPL is importing sponge iron ore from Oman plant to facilitate high production. The price of steel was lower by 3-7 percent in the fourth quarter.
Below is the edited transcript of his interview to CNBC-TV18.
Q: The Street was disappointed to see the very sharp slip in realisations in your steel business. Can you explain why realisations per tonne would have gone down so significantly?
A: Yes. There is nothing much to get disappointed. In the fourth quarter the steel prices have gone down slightly. In the last quarter there was too much pressure on inventory liquidation and de-stocking. We were building up inventories for the whole of last year on hope that the market will revive, interest rate will go down and the liquidity will increase in the market so the demand will increase, though the demand was present but price was not moving to a comfortable level.
Then, we took a call to dispose off the inventory and we were able to complete much of the inventory. The case was same with other companies also and they too started selling so prices started falling in February and March. Revival in prices was seen from April. So, there was reduction in selling price. Profitability was also hit because we commissioned a plate mill, so last quarter reflected an additional depreciation, interest, operating cost from the mill which is not fully operational. Small productions increases higher operating cost and low selling price had an impact on our EBITDA so it was high and this was clubbed together in this quarter. So there is reduction in this quarter.
Q: The market has observed that there have been slippages of about Rs 500 per tonne. Was the entire inventory product quality poor or you had to sell it at a deeply discounted price because you had high inventory and you have to offload it whatever price?
A: The steel prices have gone down 3 to 7 percent and then when we are selling a higher inventory. When we multiple it with higher inventory then the impact is larger.
Q: You also saw a sharp increase in raw material per cost, is it due to issues related to mines, will something linger into the next couple of quarters. What do you see happening from that side?
A: If we increase the sale price to that extent then the effect of raw material compared to the sale price and that ratio will automatically go down. First, the raw material cost is high because we have mentioned plate mill in P&L account so operating cost is higher than normal.
Second, we are importing lot of Hot Briquetted Iron (HBI) from Oman plant for producing finished good and selling in the market. We are gearing up to produce and sell more in next year. In the current financial year we are expecting steel capacity to go up from 3 million to 7 million tonne.
We import HBI from Oman and we produce steel and sell it, the operating cost is very high and the margins are almost minimal. So, turnover is high, operating cost is high and when we calculate the EBITDA it does not reflect every time but our regular operations we are still the same.
Q: What is the reason for sunk in merchant realizations between Rs 3 to Rs 3.25 per unit in power business?
A: Jindal Power has performed far better in this quarter compared to the second quarter and third quarter. In the third quarter due to transmission constrain our generation has gone down to 81 percent and in this quarter we are back to 99.5 percent. We feel going forward generation will be high. In the third quarter average tariff was close to Rs 3 and in the fourth quarter average tariff was Rs 3.17, slightly higher.
In the last year average tariff was slightly above Rs 4 and that tariff last year was very high even previous year to the last year was also high and the general tariff is falling. This quarter we had Rs 3.17.
Due to transmission constrain which is partially still continuing, right now selling about 30 percent of our power on power exchange. Earlier, we used to sell 5 to 7 percent on a power exchange and 93 to 95 percent largely selling power through bidding, contracts, participation in tenders through that process.
But due to some partial transmission constrain we are not able to sell power though we have a contract with us available at a better price, so 30 percent power is sold on power exchanges at a much lower price about Rs 2.50 to Rs 2.75 and the rest is sold at a better price. We hope that this constrain is taken care going ahead. A move away from sale on power exchange to a tender, sale basis and contract basis the tariff will also improve.
Q: This quarter shall we see an improvement in the merchant prices, April-May-June quarter?
A: There is nothing like merchant prices. It is always a short-term, medium-term and long-term kind of sale and every sale takes place through a tender and bidding process so that is the process which is 100 percent cases. Right now we do short-term sale. We feel that in this quarter and the next quarter as the transmission cost has been partially taken care of there should be some improvement.