See demand recovery in Q4, improvement in EBITDA/tonne: JSPL

Ravi Uppal, MD & CEO, JSPL said demand recovery is likely in the fourth quarter after the slowdown seen by the steel sector post demonetisation.
The slowdown in steel demand was more from the construction and retail sectors, he said. However, the primary steel players may be able to get their act together relatively faster, said Uppal in an interview to CNBC-TV18.

Talking about outlook for prices going forward, he said to offset higher raw material costs, steel prices were increased by Rs 2000-3000 per tonnes in past one month.

He is also upbeat on seeing an improvement in EBITDA per tonne at an average of Rs 7500 versus Rs 6000 per tonne in first half of FY17.

The company is also looking forward to pare debt by putting the lid on investments and asset sales. However, there are no plans to sell the Oman unit; in fact they would pump more equity into it, said Uppal.Jindal Steel & Power Ltd has secured the approval of its lenders to restructure Rs. 7125 crores of its 5-7-year debt into a long-term debt of 20 years under the Reserve Bank of India’s 5/25 scheme, according to a source familiar with the development.Below is the verbatim transcript of Ravi Uppal’s interview to Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: First up demonetisation what have the last five weeks done to demands for longs typically things which are used in buildings? A: As expected demonetisation definitely had slowdowns affect, but steel is a very wide segment. There are different products, the products which were relating to the construction sector and the retail sector were affected in particular which is basically rebar, wire rods etc. I would say that the market is trying to come back now. The retail sector is also trying to get their act together and is a new paradigm. I do see that the steel sector has started to recover and I think by early quarter four more or less the recovery should be there. However, one sector which would take little longer to recover is the construction and automotive sector. This is the sector where you have lot of cash transactions. So, therefore they obviously had to change to a new way of working. If you look at the institutional demand, I think the sales have recovered much faster. Therefore, primary players, the steel players they should be able to get their act together relatively fast. Sonia: Can you tell us a little bit about the steel prices as well? We did see a huge spike up in Chinese steel prices, but what is happening in domestic market? How have steel prices moved over the last couple of months and what is the expectation going ahead? A: You are quite right, steel prices have risen globally. China has also raised their prices; not only China but across the world prices have gone up. Quite in sync with that the Indian prices have also gone up by Rs 2,500 to 3,000 during the last three to four weeks time. Trigger for that has also been as increase in the price of raw materials like coking coal, pellets, iron ore fines and also alloying materials which also had gone up considerably. So, therefore the primary producers had no choice, but to pass on the increase to their customers. They did it reluctantly, progressively, but the increased had to be passed on to them. Sonia: What are you looking at in terms of an EBITDA per tonne say in the coming quarters and how much do you think it could increase to compared to the Rs 6,000 that you did in the previous quarter? A: That EBITDA depends also what is the kind of product profile that company has because the flat products are operating at different EBITDA levels compared to the long products but I would say the EBITDA level will show some kind of improvement. It should be in the range of about Rs 7,500 average. I obviously cannot speak on behalf of everybody because the EBITDA levels depend as to what is the kind of product mix you have. Latha: At long last we actually heard of PPAs, there was one from Karnataka which finally made it to the newspapers and UP was pending for you. Have you signed UP? Have you applied for Karnataka? A: We did not apply for Karnataka, we did participate in UP and we are waiting for the final outcome of the UP. We are placed well; we are the second lowest bidder, so let us hope that it will soon translate into a prospect. It is under valuation and action. Latha: The other issue wanted to ask you about is deleveraging? We were talking about the Oman unit’s sale, some coking mine sale what is your sale list and anytime table you can give us? A: As I mentioned and during our previous discussion with you is that we are also trying different ways to bring down the debt of the company. We are trying different ways – number one is that we have put down our new investments and number two is that we are looking at the sale of the assets. We have succeeded in selling some assets as far as your question relating to Oman is concerned we don’t have anything on the agenda at this moment for any divestments. However, we are looking for ways to infuse some equity, more equity into the unit by way of some other people participating in that one. So, there are different options. Our idea is to bring more equity into the unit. Sonia: By when would you look to bring more equity? Are we looking at the early part of Calendar year 2017? A: I can’t say the timeframe the discussions are in progress. I just hope that we are able to do it as soon as possible. Latha: This strategic debt restructuring (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A) was so much in the conversation up until the first week of November, is there any progress any unsustainable debt that you can get converted into preference share? Should we hear anything at all in the first quarter of calendar 2017? A: The first thing I should confirm to you is that we have started with 5:25 both for the power as well as the steel business and that entire thing as been done and closed. So, that covers nearly Rs 8,000 crore of total debt that we had. We have also gone into discussion for S4A or some kind of restructuring of debt. There are various options opened which are under discussion with finance institutions. The discussions are going on in a good way and I am sure that we will very soon find a mutually acceptable solution to this. Latha: FY17? A: Yes, certainly. Latha: Is Yamato Kogyo doing anything for you? Buying anything selling anything? A: Why talk of only one option. There are few other options we are talking to. Discussions go through different stages and we are not just confined to one particular company. We obviously run the plan with several options in parallel. It depends which one will come to finishing line first. Latha: Is there is a stake sale of JSPL shares. Will it be a unit that they will take, will you hive off something, what are the options? A: It is interesting you are saying that – it is actually both of them which we are considering that it could be one unit which we setup as a joint venture. It could also be that we talk in terms of selling a small stake at the group level. So, it is not confined to just one particular option. It is both of them which are in consideration. Sonia: Deal with Yamato, is there any likelihood that it will happen within the next say 6-8 months itself? Have the talks progressed that much? A: As I mentioned that we are talking to different prospective partners and we have to see that whatever we do we do in the best interest of our stakeholders. So, as soon as we come to that kind of point, we certainly will take a decision and move forward in a full speed.