Demand still weak; miners must not up ore prices: Kalyani Steels

Kalyani Steels shares have doubled over the last one month despite the company not receiving any benefit from the minimum import price (MIP) policy or other safeguard duty.

In an interview with CNBC-TV18, RK Goyal, Managing Director of Kalyani Steel said that operating in a highly turbulent market the company has tried to cash in on any opportunity that came its way. This approach has led to an expansion in the company's margins, he said.

He said that there is no major demand pick-up in India and it will be in interest of the industry if miners do not increase iron ore prices.

Goyal denied rumours that the company was up for sale.Below is the verbatim transcript of RK Goyal’s interview to Sumaira Abidi and Nigel D'Souza on CNBC-TV18. Sumaira: How are things looking for you? In fact it is not just your stock which has been doing well, even your margins from about 13 percent you all have now reached at 25 percent mark. How are things looking because you are not getting the benefit of Minimum Import Price (MIP), you are not getting the benefit of any safeguard duties, is it going to be up, up and away or have you sort of reached your optimum over here? A: First of all we are operating in highly turbulent markets. But we are quite open and we are a very highly agile organisation. If any opportunity comes on way we immediately try to encash. We had few such opportunities last quarters. We encashed and that is getting reflected in our numbers. So, even currently if you look at it the prices of all key raw materials are increasing whether it is coke which has gone up from USD 115 to more than USD 200, even iron ore prices but let us hope there will be some opportunities where we will make some good money and we will be able to continue the way we are performing. But if you analyse on paper you look at the raw material costs increasing, customers not paying you. So, anything extra, things doesn't look great. Nigel: 25 percent margins, things are looking splendid. As you said coke prices have gone from USD 115 per tonne to around USD 200 per tonne. What is your sense in terms of iron ore prices. We had Tata Sponge who joined us earlier today. They said that sponge iron prices have gone up by Rs 600 per tonne. Do you think there is a case where NMDC can increase prices in the coming review that is for the month of September? A: We operate in the global market. Currently China is prodding fairly large quantities, they are creating records month after month and that is their reflection of prices of iron ore as well as coking coal and coke going up globally. As far as India is concerned we are in a very different situation. We are not finding much pickup in the demand. Yes, looking at the international prices NMDC may increase some prices but then our domestic steel industry will not be able to absorb it. Rather, volumes will go down further and imports in one manner or other may increase from various other countries even though there is MIP. So, my suggestion to all these miners will be not to increase price and over and above now there is a differential price in Karnataka. The prices in Karnataka are much higher than other states. Our suggestion to them is they should be at part rather than taking advantage of a situation where Supreme Court has put certain restrictions in terms of mining and all and the largest miner there increases prices disproportionate to what their prices in other states. Sumaira: But in the event that NMDC is looking to hike prices could you give us a sense of what is the kind of room they have on the upside? A: Whenever you are in a monopolistic situation it is for you to decide to what extent you can increase the prices. We have no choice but to buy iron ore in the e-auction and if they increase the base price we have to buy at that price, we have absolutely no choice. As far as the imports of iron ore is concerned it is just not workable just because of the logistic cost, nothing else. Logistic costs and logistics in India are not that efficient and from port to our plant the cost of transportation and custom clearance is more than Rs 1,500 per tonne which makes this unviable. Nigel: Quickly could you tell us what kind of margins can you guide for going ahead from 13 to 25 percent has been a good move but what kind of margins can we work with, can we work with 22-25 percent, give us a range? A: As I mentioned before market is highly volatile, highly uncertain. Now the way coke prices have gone up it may come down and if it comes down, yes, we would, why not. We would like to operate at margins between 20-25 percent. But if it moves only in one direction which is largely to do with global factors then margins will be under pressure. Nigel: There is so much of talk in the market that maybe in fact Kalyani Steel is a good company, maybe it is on the block, maybe in fact buyers are looking at you. Could you confirm, have you been approached for a buy out? Is Kalyani Steel on the block and also could you tell us you have a capacity of around 2.5 lakh tonnes approximately. Your enterprise value is roughly around Rs 1,800 crore. You will be the best analyst of your own company. So, what kind of an enterprise value can you give your company? A: First of all as far as we are concerned it is a news to me which I am hearing from you that we may be on the block. We are not on the block, we are doing very well and why we should think in that direction. As far as the enterprise value is concerned I find the company is performing very badly or not so good, even their Price-to-Earnings Ratio (PE) is anything between 30-140 times. So, currently our Price-to-Earnings Ratio is only 15. I would like that at least this ratio to go up to 30.