In an interview to CNBC-TV18, Seshagiri Rao, Jt MD & Group CFO of JSW Steel spoke about the impact of the rupee depreciation and the impact on the industry if the iron ore royalty goes up.
I personally believe that whatever has happened in the last few weeks, rupee does not deserve to depreciate so much in just a few weeks time
After the Supreme Court (SC) lifted mining ban in Karnataka recently, JSW Steel says it is currently operating 14 mines in the state and its iron ore availability is approximately 14.15 metric tonne per annum.
Due to the continuous fall in the rupee, JSW may see translation losses in the P&L account said, Seshagiri Rao, joint managing director and group CFO in an interview to CNBC-TV18. The firm imports coking coal for its mining operations.
Rao further said that sluggish demand continued to bother the company.
Below is the verbatim transcript of Seshagiri Rao's interview with CNBC-TV18
Q: Could you outline what impact the rupee depreciation has and with the rupee closing the June quarter at levels of about a 59.5, what could we expect the impact in Q1?
A: There will be translational losses on companies which have foreign currency debt, but as we have been clarifying that JSW Steel economic exposure wise there is no problem. Whether steel sold in India or overseas, it is dollar linked so if rupee depreciates we will be able to get more revenues even in domestic sales so there is a natural hedge that is available. However, at the same time, there will be volatility in the earnings due to very steep depreciation of rupee that will lead to translational losses in the profit and loss account.
Q: First you said that there is this natural hedge since landed steel is also dollar denominated, but given the state of demand in the country will you be able to raise prices even if the landed price went up?
A: It is possible because the pricing in the domestic market is majorly linked to the landed cost of imported steel. If it is so then the pricing will be determined based on the landed cost. So it is possible to do that given that demand is not robust enough. The pricing methodology has been agreed for the last several years which has been followed in the domestic market. So I don't think there will be a problem in working out what is the landed cost if the rupee is at 59.50-60/ USD.
Q: The reason we are asking is we haven't got any announcements from any of you, today is July 1 and you are staring whether on a quarterly basis or on a monthly basis at a deprecation of about close to 10 percent. So should we expect some announcements today?
A: What is important to note is that the iron ore prices internationally are falling. Similarly coking coal prices in dollar terms are falling, at the same time steel prices are also falling. So when the rupee depreciates, when the international prices of steel is falling then we have to see the overall impact - how much we will be able to pass on or should pass on to the consumers. So we are working out with various user industries and the various customers so we will be working out how much would be the increase.
JSW Steel stock price
On September 30, 2014, JSW Steel closed at Rs 1157.70, down Rs 50.55, or 4.18 percent. The 52-week high of the share was Rs 1365.35 and the 52-week low was Rs 707.50.
The company's trailing 12-month (TTM) EPS was at Rs 97.49 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 11.88. The latest book value of the company is Rs 970.48 per share. At current value, the price-to-book value of the company is 1.19.
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