Rao added that the liquidity condition in the market has improved
Shares of JSW Steel have fallen 22.4 percent over the last three months, a steeper fall compared to the Sensex, and its peer Tata Steel. There are fears that the steel cycle, which has been on the up for a year, may be turning.
Also, the current situation of falling steel prices amidst persistent high cost of raw material may hurt the company most. JSW Steel, unlike Tata Steel, is largely dependent on outside sources for its raw material needs.
But Seshagiri Rao, the Joint Managing Director & Group CFO of JSW Steel is not worried. While the fall in prices will hurt, the industry veteran expects demand to pick up within a quarter. "Things will stabilise in the fourth quarter," Rao told Moneycontrol in an interview.
Q: JSW Steel's stock price has seen a steep fall. There are concerns that the cut in steel prices will hurt margins.
A: I don’t think so. All steel stocks have fallen. Those who really understand the JSW Steel story, don't have to sell.
And see the history. In December 2015, our EBITDA (earnings before interest, tax, depreciation, and amortisation) came down to Rs 3,500 per ton. And the normal margin at that time was about Rs 7,000 a ton. I explained that if you add the inventory loss to the margin, the EBITDA will go up to Rs 6,600. The fall was marginal. But nobody bought the argument.
But the next quarter we were back.
Today too, I don’t think we need to be so concerned about margin fall. Even if the current situation continues, it's a matter of one quarter. Things will stabilise from the fourth quarter.
Q: How is the demand scenario in India?
A: In India, there is a liquidity crunch which has hit consumption and retail. OEMs are ok up to now. Demand is a little weak. But as liquidity improves, things will improve. Last few days, we have seen positive liquidity in the marketplace.
Globally, the underlying demand, except China, is ok.
Q: NMDC has stopped ore mining in Donamalai in Karnataka, and that is a concern. As JSW Steel used to source part of its ore requirement from here, how are you making up for the loss?
A: There is no option for us but to source from outside.
We will continue to operate plants in full capacity.
The government has indicated that there is up to 5 million tons of iron ore stock that will be auctioned. And we are hoping that clearances for C category mines will be expedited.
We also have won rights to six iron ore mines in Karnataka. Two of them have become operational.
Q: Are you looking for more mines?
A: There are mines in Odisha which have been put for auction. Dates have not been fixed yet. There are 7-8 mines. There are also coal mines in Odisha and Jharkhand. We had got one mine in Jharkhand and will start producing from there in 2019.
Q: Have you decided on the timeline for the Rs 5,000 crore rights issue?A: It will depend on how the Bhushan Power & Steel auction pans out. The decision will be taken once the insolvency process is over.