The company is also looking to sell non-core assets worth nearly Rs 3,000 crore to deleverage its balance sheet, says Ravi Uppal, MD & CEO of Jindal Steel and Power (JSPL).
A "fairly vibrant FY17" for the steel industry is likely to aid in significant improvement in Jindal Steel & Power's operating performance, says CEO and MD Ravi Uppal.
"Strong EBITDA coupled with money received from the JSW Energy deal, should help pare debt. Target is to reduce debt to equity ratio to 1.6-1.8x by 2019-20," Uppal said in an interview to CNBC-TV18.
The company is also looking to sell non-core assets worth nearly Rs 3,000 crore to deleverage its balance sheet, he said.
On weakness in the power business, Uppal said the fourth quarter performance was hit by transmission constraints but things are likely to look up as we head into peak summer season.
Below is the transcript of Ravi Uppal’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: Your steel sales and pellet sales have done well. What were exactly the realisations for both of these – steel and pellets?
A: It is true that the steel volumes in the fourth quarter, both in the domestic market as well as on a consolidated basis have gone up by 38 and 40 percent. And as for the net sales or realisation is concerned, it has started to improve from the second week of February and the in the last two months that we are seeing, the realisations have improved. But if you take the remaining period of the quarter four, we were not able to get the full benefit. So therefore, you do not see proportional increase in revenue. But, a trend has been set and we see the continuity even through April and the realisations continue to improve and the good thing is that the international prices have also risen to a level which is equal to more than the minimum import (MIP). That is a great comfort.
For example, our plant in Oman, they are really harvesting the benefit in improvement in prices. So, you will see more impact of the price increase in the first quarter of this year.
Sonia: But steel prices have corrected sharply in the past 10 days globally. So, is this sustainable?
A: My personal view is that the prices of both steel and pellets nationally and internationally remain a little bit erratic and unstable. We are yet to see a proper trend in them. But having said that, I would say that with China having closed to nearly 100-125 million tonne of capacity and also, raising their demand for the domestic development using steel, the prices have risen. A lot of Chinese suppliers have taken positions on steel which has seen that the steel prices rise. And this has not happened just in China, it has had its favourable impact right across the other global territories from Middle-east to Europe, everywhere.
So, I think the prices will improve. But it is hard to say right now how much they will improve. So, if you look at the last three months, the prices have been increasing steadily. I cannot say that they increase every day. Sometimes, they are down, sometimes, they are up, but the distinct trend is towards improvement.
Latha: Actually, moving on, when can we expect the positive impact of stuff coming from Sarda mines?
A: We have already had a favourable judgement from the high court and now we are going through the administrative procedures to see that we get the clearance and we can start lifting of iron from the mine into our works. So, that is a matter of just a couple of weeks.
Sonia: The problem area in your results was Jindal Power which has seen a big earnings before interest, taxes, depreciation and amortisation (EBITDA) decline on a sequential basis. Can you tell us what was the exact EBITDA per unit, how much did the realisations fall and if you could give us more detail on the plant load factor (PLF) as well?
A: Let me first clarify that the demand for power has been somewhat tepid. This is not only just for us. I think it is right across the country and people had anticipated that the demand for power will really pick up, but unfortunately, that has not been the case. And then of course, there have been transmission constraints. The off-take of power could have improved if the transmission network was in place. But there is a lot of late demand in the country. We still have vast areas within the country which go without power 8-10 hours every day. Now this, therefore, definitely had an adverse impact on the total PLF of our power units and I would say that if you look at the 4x250 megawatt where we have been running three to four machines out of the four machines that we have got, the PLF generally has been between 75-80 percent. And the same plant, we used to run between 95-100 percent. So, the power units are in very fine petal and they can deliver full power. But it is just that the demand has to rise.
As far as the other units are concerned, the two units of 600 megawatt which is called a EUP-II, there we have been running between one to two units depending on how the demand off-take is. And there again, with the summer load picking up, we should be able to run two machines. So, in the Q4, which is neither winter nor summer, generally, the PLFs drop and they tend to improve in the first quarter which marks the advent of summer. So, I am really hoping that the load should pick up as we go into the next quarters.
Latha: So, what exactly, did I hear you right – 75-80? Can you tell us what exactly is the PLF you saw and expect, as also more importantly, your EBITDA per unit. Your realisations per unit?
A: I can give you Net Sales Realization (NSR). I do not have unfortunately, the numbers with me for EBITDA. The NSRs have, for the phase-II have been in the range of about Rs 340 and as far as the EUP-I is concerned, there was a small dip in the NSR because our 200 megawatt supply to one of the clients in the south got disrupted due to non-availability of lime, but it is coming but it is coming back. We already started from April and is going up still further. But that was a temporary sort of drop. It would recovery its lost ground in the next quarters.
Sonia: What were the realisations for EUP-I?
A: That was about Rs 290-295
Sonia: The street is very concerned about your raising finance cost which has increased almost 7 percent sequentially. What was the reason for this and will the JSW Energy deal make any difference to the current debt or the finance cost in the near-term?
A: I should clarify to you that the JSW deal, we are going to get Rs 500 crore as an advance and the rest of the money will be paid to us as soon as we fulfil it to conditions that have been set. And we just hope that – it is too long a time that we have taken. We do believe that we should be able to fulfil them in a much shorter time. And as soon as that gets done, we get the entire amount of Rs 6,500 crore as equity into the company. So, coming to your earlier question that the interest burden is increasing, I would like to clarify that in the fourth quarter, all the assets that we had built up have got capitalised. Therefore, the interest cost came straight into the profit and loss (P&L) statement.
Now, going forward, we just want to make sure that our EBITDA levels go up and we are able to fully service all the interest cost that we have and once we get the JSW amount realised, your part of this will be used to take care of our immediate need or liquidity and increased working capital. And the rest of it, we will use to reduce our debt. And I also want to tell you that we are looking also at selling some other assets which are not core to our business and we can simply do without. We are at a fairly advanced stage of discussion on those assets and as and when we come to some finality, we will certainly share that.
Latha: Can you tell us what is the value of that non-core assets that you are referring to?
A: The list of non-core assets that I am taking to you about is not a list that is frozen. It is something that we are constantly looking at. There could be certain things where we need in input into our process, but we need not own it. So, we are looking at those kind of things which can cash out where we transfer the ownership to people for whom it is the core business. And we do need to own them. So, those are the kind of assets that we are looking at. If you ask me, in the short or medium-term, how much we are thinking to raise out of them, I would say it should be in the range of Rs 3,000 crore. But the list is open. Let me qualify by that.
We will continue to add to see, we will continue to endeavour to see where we become asset light as far as possible without it having any adverse impact on our day-to-day operation, but the list I open. My basic idea is that we should be able to raise more liquidity by divesting those assets.
Sonia: But the biggest concern is still your huge debt pile that the company is sitting on. What is the plan there? How do you plan to reduce it?
A: Let me tell you two things. Number one, we do see that year 2016-2017 is going to be a fairly vibrant year for the steel business. As you saw that our volumes rose by nearly 38-44 percent domestically and internationally and we do believe this trend will continue because imports have come down to less than half. And also, the infrastructure seems to be picking up. So riding on the increased demand and better prices, we believe that our EBITDA levels will increase substantially. And therefore, we are going rely a lot on our improve EBITDA earnings to pay off certain amount of debt and which will be further supported by divestment of certain assets.
So, if you take both of them together, the main focus will be to reduce the debt and the interest burden out of that. For me to set a timeframe by which time we will reduce it, it is a difficult thing to do, because there are so many factors which continue to impinge on us from the external environment. But our timeframe would be that by 2019-2020 that is in about three to four years time, I would like to see that our debt equity ratio should come to a level of 1.6-1.8.
Latha: What is your current debt now?
A: Current debt, all total consolidated is about Rs 46,000 crore.