Back in April 2020, when most steelmakers in the country cut production after the government announced a lockdown in March because of COVID-19, the senior leadership at JSPL took a contrarian view.
"Some of our peers stopped producing or reduced their capacity utilisation. We also debated doing the same. But eventually decided to continue production. That was a major and bold decision that our team took," Managing Director VR Sharma told Moneycontrol.
While the rest of the industry cut capacity utilisation by up to half for the first three months of the financial year, leading to a drop in production and sales, the trend was different for JSPL.
The company kept running its mills at 80 to 90 percent utilisation, says Sharma. The company's steel production grew 8 percent quarter-on-quarter in the first quarter, and sales were up 12 percent. The trend was similar in the second quarter, with sales now growing by a faster rate, at 30 percent.
Instead of depending on the domestic market to sell what it produced, JSPL was among the first in the country to channel all efforts to export markets. "We sold them all around the world. We did that without meeting them ( the clients) but through Zoom meetings," said Sharma.
In 'normal times', JSPL used to export about 6,000 tons a month. But, that number shot up by over 2,000 times from April. "In the last three months, we have exported over nine lakh tons of steel. Nearly 30 percent of these exports were to China," Sharma had said in July 2020.
The timing was good, as China had already begun recovering from the pandemic, and was implementing a $2 trillion stimuli package.
"That decision to continue production, has kept us three to four steps ahead of the competition," says Sharma.
The financial recovery
That one decision has continued to bear fruit in the third quarter. JSPL recorded its highest ever quarterly production, with a jump of 22 percent in the third quarter, compared to the same period a year earlier. Sales were up 30 percent.
The improved showing in production and sales have helped the company swing back in the black. Just like it did in the first two quarters of the financial year, the steelmaker recorded a profit in the third quarter.
It had a consolidated net profit of Rs 2,432.20 crore for the quarter ended December 2020, mainly on account of increased income. The company had recorded a net loss of Rs 257.36 crore during the same quarter a year ago.
Sharma expects the demand for steel to be 'stable' in the fourth quarter too, and that may see JSPL get back to black for the whole financial year, as compared to a net loss of Rs 109 crore in FY20.
With an improvement in demand for steel in the domestic market, the focus has shifted from the exports market. From a share of 38 percent of the production in the second quarter, exports were down to 21 percent in the third. "Demand has increased with new projects, and with old ones resuming. We are seeing demand from different segments, including water pipelines, railways, shipbuilding, power sector and fabricators," Sharma said.
The 15-15-50 target
The improved showing has helped the company reduce its debt mountain by Rs 11,000 crore in nine months. "We had started the year with a debt of Rs 36,000 crore. It's now at Rs 25,000 crore," said Sharma.
The plan, he added, is to further reduce it to Rs 15,000 crore by 2022. It's part of the company 15-15-50 road map. "Our aim is to have Rs 15,000 crore of EBITDA, or earnings before interest, tax, depreciation and amortisation, Rs 15,000 crore debt and Rs 50,000 crore of sales turnover by 2022. We are on track," added Sharma.