Apr 15, 2013, 05.25 PM IST
Jindal Steel and Power Ltd has increased steel product prices by Rs 500-Rs 1500 in April, following hike in raw material cost and some duties.
"We find that our costs have increased; the cost of raw materials such as coking coal and freight within the country has increased, some duties have increased. So, we had not option but to hike the prices of steel products we are offering in the market," Uppal said.
The price hike comes as a surprise, as the steel companies are already suffering from low demand due to slowdown in key consuming sectors like infrastructure and automobile. Uppal was however confident that price hike, taken over and above the changes in March is sustainable.
The Delhi based company reiterated its plan to raise USD 400 million worth of external commercial bonds to meet its expansion needs. JSPL also plans to invest Australian dollar 10 million in Australia based Apollo Mineral for acquiring 50 percent stake in iron ore assets. JSPL already owns 11.7 percent stake in Apollo Minerals.
In March, the Australian company had issued a statement saying that it plans to split its iron ore assets into a new listed company, NewCo, on the Australian Securities Exchange. JSPL will acquire majority stake in NewCo at the time of its listing through an IPO.
The Navin Jindal owned company hopes to increase steel production to over 7 million tonne in 2013-14.
Below is the verbatim transcript of the interview.
Q: Has the company taken any price hike in the month of April and how much?
A: Yes, we have increased our steel prices between Rs 500 to Rs 1,500 this month and this is over and above what we did in the month of March.
Q: Last time the price hike had to be called off pretty quickly because there was some demand resistance in the industry in general. Is the industry in a position to stomach a price hike now?
A: We did not call off any price hike. We did the price hike last month.
Q: The industry in December after a price hike saw some corrections because the price hike was not met with demand resistance we were told. This is not current hike. I meant four months ago?
A: We stayed put with the prices, we announced in the month of March. Again now in the month of April we find that our costs have increased; the cost of raw materials such as coking coal and freight within the country has increased, some duties have increased. So, we had not option but to hike the prices of steel products we are offering in the market.
Q: This price hike is sufficient to offset any increase in cost pressures, your margins will be status quo?
A: Whatever cost hike has taken place, we have increased the prices to that extent so I do not think that our margins should get affected if we are able to realise the prices that we have increased.
Q: Can you take us through your capex plans and more importantly you are planning a bond issue to finance your capex?
A: We have a major capex programme underway right now both on the steel side as well as on the power side. We have started the phase two of the Angul project so that investment is underway. That investment programme will continue right up to the end of 2015. The phase two will be done over the next two-and-a-half-three years time and in parallel with that we have expansion programme, which is going on in Oman. We are in the process of commissioning our 2 million tonne plant, which should hopefully get on stream by October this year. Apart from steel we also have major expansion programme in Tamnar power project, we are in the process of commissioning four units of 600 megawatt and I am hoping that all the four units will get commissioned during the current financial year that is before April 1, 2014. So, whatever amount of investment is residual now that investment will be made in the current financial year.
Q: Is the company immediately planning bond issuance and if yes, how much it would be and what terms?
A: In order to meet our expansion needs we will go with the bond. Tentatively we have thought that this size of the bond should be about USD 400 million. Some weeks ago we had announced our intention, but exact timing of this bond, we are yet to fix. We are making investments both in India as well as abroad. So, we have a need for investments outside India. Therefore, we are thinking of going for USD 400 million bond issues.
Q: You also bought a stake in an Australian company, Apollo Minerals. What was the amount?
A: As far as Apollo Minerals is concerned, we have invested in the iron ore part of that company. We have come to understanding with Apollo is that we will breakup the company in two parts; one of them is dealing with iron ore and second is non-iron ore minerals. Our interest is in the iron ore related where we have offered to invest about Australian dollar 10 million that will get us more than 50 percent share in that company. So, that is the offer that we have made to them.
Q: What about Orissa’s mining ore? There were some news about the Shah Commission perhaps looking for limits and caps in that state as well. You have any problem with iron ore supply from that state?
A: I am not aware of anything that you mentioned just now. As far as we are concerned we are all set to get our Angul phase one commissioned, which basically means that we are waiting for our final execution list to come in our hands. I am optimistic. It is a matter of couple of weeks before we should be able to start our mining operations. I believe that is around the corner.
Q: Post the open offer for Gujarat NRE Coke’s Australian subsidiary you managed to increase your stake only up to 31.5 percent as oppose to your intent or your wish to get a majority stake. Could you tell us the plans now? How are you looking to acquire majority controlling stake in Gujarat NRE Coke’s Australian subsidiary?
A: Before answering that it is important to understand the equity structure of this company as it exists now; we have about 31.5 percent in this company and Gujarat NRE holds about 64 percent and the balance 4.5 percent is with public at large. When we made the open offer last time we made an offer to the existing shareholders as well but so far we have been able to come only up to 31.5 percent. Our offer still remains open and we are quite open if anybody wants to sell their equity shares in full or in part, we as a company are very open to the idea. So, given a choice we would enhance our volume in this company.
This company holds certain value for us, of direct relevance to us because it produces a good quality of coking coal for which we ourselves are a potential buyer. We already have placed an order for almost a million tonne of coking coal from this company.
Q: Is it under consideration to increase the price at which you are willing to acquire further stake?
A: We made an open offer last time, we offered a good price to our potential shareholders and we got good response. However, now the amount of shareholding in the market is very limited, it is just about 4.5 percent, but the major holding is by the promoters of Gujarat NRE. So, if they are willing to offload any part of their equity, we will be happy, we are quite open-minded, but as of this moment we have 31.5 percent and we are quite happy with the response that we got last time.
Q: Since some of your capex is about to be commissioned anytime now, you have the entire year to take advantage of it. Can you give us an idea of what your volume growth and maybe even revenue growth will be in FY14?
A: So far we were producing about 3.5 million tonne of steel and year ‘13-14 is an important year for us because two of our major units will be getting commissioned; the first is Angul phase one, where part of the capacity is already commissioned, our plate mill is commissioned and the other units are upstream, the steel melting shops and direct reduction iron (DRI) units and the coal gasification units should get commissioned in the next six months time. So, that is one unit, which will bring additional capacity of 1.8 million tonne and in addition to that our steel melting shops in Oman will also get commissioned by early October and that will bring us another 2 million tonne. So, this essentially means that during the year 13-14 we will be doubling our steel production capacity as a group and it will go beyond 7 million tonne, which is a major landmark for us as a company
Q: You do not see any problem in terms of gas availability?
A: Gas has been used by us in case of Oman and we have enough gas there to help us produce 1.5 million tonne of DRI. As far as Angul is concerned, we have setup our own coal gasification plant. As a matter of fact JSPL with the commissioning of this plant becomes world’s largest DRI plant using coal gas and this is a major step both for JSPL as well as India as a country. In India our first choice would have been natural gas, but when we found natural gas does not appear to be a certain option, we chose the other course, which was coal gasification. So, we are commissioning this 225,000 cubic meter per hour coal gasification plant in Angul and this should be done latest by early July or middle of July latest.
Q: You also spoke about increasing your power capacity. I missed the number, but is there a certain confidence that raw material will not be an issue, coal will not be an issue or you will be able to manage with imported coal. What is the confidence because it is very positive to hear someone speaking about expanding power capacity at a time when so many people are stymied with existing capacity?
A: Right now we have two-and-half-thousand megawatt, which is operating capacity and during this year we will be commissioning all the four units of 600 mw, which should means that by the time financial year comes to close we would have achieved 5,000 mw. Out of these four units about two of them, we have coal linkage and for the other two units, we have to arrange the coal. We have once again made an application for the other two units as well. However, the good news is that our power projects are absolutely on time and ahead of time. We have made more progress than any other unit, which are entitled to coal linkage or supply of coal fuel and I hope the government will take stock of the progress that we have made and consider very sympathetically that we have four units capable of delivering two-and-half-thousand megawatt, which government should help to bring on-stream and that would help contribute to at least reducing and not completely eliminating the power shortage that we have.
Jindal Steel stock price
On December 04, 2013, Jindal Steel & Power closed at Rs 278.45, up Rs 2.95, or 1.07 percent. The 52-week high of the share was Rs 473.90 and the 52-week low was Rs 181.55.
The company's trailing 12-month (TTM) EPS was at Rs 15.98 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 17.42. The latest book value of the company is Rs 132.09 per share. At current value, the price-to-book value of the company is 2.11.
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