This is part of the company's overall plan to have a capacity of 10 million tonnes per annum outside India
In a freewheeling chat with Moneycontrol, JSW Steel's MD & Group CFO Seshagiri Rao talks about range of issues — impact of GST, his concerns on rising imports, plans to acquire downstream units in overseas markets and the funding challenge. The steel veteran also talks about a surprising paradox — even as the country talks about unemployment, there is shortage of labour. "We are still trying to understand what is happening," he says.
It's been a year since GST was launched. How has been the steel industry's experience?
The mechanism of refund needs to be streamlined, and there are some process-related issues where GST is getting taxed twice. We have brought this to the attention of the government, and they are looking into it.
How do you see the demand for steel in the domestic market?
Overall, the economy in my view is doing quite well. Auto numbers have been fantastic and rural economy is doing quite well.
The construction sector?
In construction, affordable housing is picking up.
But increasing imports are a worry, isn't it?
Imports are a matter of worry because already we have seen an increase of 15 percent this year, and more and more booking are happening. And after the US sanctions, more steel from Canada, Turkey and other countries, is looking for newer markets. More than 50 percent of the imports are coming from countries with whom India has free trade agreement. So there is a need for the government to look at it.
Has the iron ore pricing issue been sorted with NMDC?
NMDC has reduced prices by Rs 300 per tonne. But there is still a differential of Rs 400 between prices in Karnataka (where JSW Steel has its facility) and the iron ore rate in Odisha. We are still requesting NMDC to adjust the rates. The pricing problem still remains.
What else are you doing to secure your raw material needs? Are you looking at buying more mines?
Eight mines are to be auctioned in Karnataka. The auction has been postponed. Whenever they come on line, we will participate.
You have talked about having a capacity of 10 million tonnes overseas. You have made investments in the US and Italy till now. What does the road map look like?
Right now, we have visibility of 5.5 million tonnes (3 million tonnes in the US and 1.5 million tons in Italy). We are looking at other assets, but haven't taken a call yet. These are manufacturing facilities in the US and Europe, and downstream facilities in other regions.
Aren't you looking at the asset in Romania (which ArcelorMittal is selling)?
No, we are not looking at that.
You talked about downstream units. Which geography are you looking at?
Today we are large exporter of downstream products, almost 45 percent of total downstream products are exported. Going forward, we would like to continue serving these markets even if there are challenges in terms of trade actions. These are markets in Africa, Europe, Middle-East and Asia. We are interested in facilities with capacity of 2-3 million tonnes a year.
How are the cost factors of manufacturing in the US? Are energy costs high?
In the US, gas is cheap. Energy costs are lower there than what we have in India. Here the gas costs up to $19.
We are investing to make the facility fully integrated. For $500 million, we are getting a facility that makes 3 million tons of steel. In India, a brownfield expansion comes at about $600 million for each million ton of steel. In the US, the rate is about $160 million per million ton of steel. Even if the Ebitda in the US is 30 per cent of what we get in India, we can still have the same return on capital. In my view, it is a very good acquisition.
There have been talks of financing becoming a challenge. What has been your experience?
Absolutely. Funding has become a challenge. Banks have money but are unwilling to lend. If the growth has to pick up, then the growth has to be funded. There are few sources in India that can provide long-term funding to core sectors, and these sectors need long-term funding. It has become difficult to raise even Rs 4,000 to Rs 5,000 crore in long term funding.
What are the other challenges that are there?
Logistics has become a constraint, especially in terms of availability of wagons and trucks.
In Indian Railways, there are two problems. One is the availability of of wagons and then the network, which needs to be expanded. There is scheme to incentivise the private sector to manufacture wagons. But there are issues which needs to be sorted before the scheme becomes viable and attractive for the private sector.
What is the issue with trucks?
Demand is increasing for bigger trucks, 28-30 ton trucks. It's becoming more expensive to move freight on light commercial vehicles. But there is a shortage of heavy vehicles.
There is a third challenge too.
What is that?
That is the availability of contractors and labours. We are investing Rs 45,000 crore in large projects. But we are not finding very high skilled contractors. These are technology-intensive projects, but few contractors are able to do it. Many of the present ones are in financial distress.In terms of labour, we need about 40,000 labourers a day in our plant. But mobilisation is not happening. While on one hand we are talking about unemployment, here we are having a shortage of labour. We are still trying to understand what is happening.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.