JSW Steel‘s Joint Managing Director and Group CFO Seshagiri Rao says demand-supply gap impacted domestic prices in the September quarter and that production in India increased during the quarter without an equivalent increase in demand.
JSW Steel on Thursday posted a multi-fold jump in consolidated net profit at Rs 726.46 crore for the quarter ended on September 30, 2016.
The company’s had posted a consolidated net profit after tax after share of profit of non-controlling interest and share of profits of associates/joint ventures of Rs 56.26 crore in the same period last year. Consolidated total income from operations increased to Rs 14,420.88 crore in July-September this year, from Rs 11,992.96 crore in the year-ago period, JSW Steel said in a filing to BSE.
Commenting on the earnings, JSW Steel’s Joint Managing Director and Group CFO Seshagiri Rao said demand-supply gap impacted domestic prices in the September quarter. Production in India increased during the quarter without an equivalent increase in demand, he said. He added that as NMDC increased prices cost pressures came into play during the quarter.
Below is the verbatim transcript of Seshagiri Rao's interview to Nigel D’Souza on CNBC-TV18.
Q: All our viewers and all of us we have been quite happy to what the Government of India is doing in terms of protection. You are telling me with that protection we are seeing prices decline given that it is a weak quarter normally because of monsoon factors tell us what has been the price change if I compare the blended realisation in quarter 2 and as of today what is the change in prices and also do you see that scope to pass on some of this increase in input cost?
A: Today cost pressures are so high not only in India even internationally coking coal prices in the last few weeks almost more than trebled. It used to be USD 80-90 per tonne FOB, now it went up to USD 255 per tonne today, so it is more than trebled.
Similarly, the iron ore prices which USD 54 I have seen just last week, now in this week I am seeing USD 63 plus, so there is a huge amount of cost pressure is coming in because of hike in iron ore prices and coking coal prices internationally, but in line with the increase in the raw material prices we have seen in all the 3 continents whether you take USA or you take China or you take Europe prices have going up. We have seen a USD 50 increase in US, USD 35 increase in China and Euro 60 increase in Europe and the prices are going up - - therefore there is no option if this prices of raw material remaining at the elevated levels at least temporarily in the next 1-2 quarters due to disruptions in Australia because of weather or curbs which are imposed in China on the mining, because of which the prices maybe higher due to which I expect the steel prices to go up, not only oversees even in India.
Q: Could you tell us in terms of inputs is there some slippage somewhere, because we have this minimum import price (MIP) in place, ADD on remainder products, but there is still seems to be quite a few imports that are coming in, what’s your sense is it coming below the MIP price?
A: We have analyse the data particularly 66 items where MIP is there, so these 66 items when we analyse in the first half of this financial year 32 percent of the imports which have come in are below the MIP price - - that is a matter of concern. In addition to that whatever is not in MIP or anti-dumping when we look at what India is capable of producing, there is a huge amount of increase in imports which is happening. For instance tinplate there is in fact surplus capacity in India. Similarly, non grain-oriented electric steel there is a huge amount of capacity in India, which we can produce and supply the entire demand.
There is no need for us to import at an unfair price. We are looking towards government where this type of increases in the imports are happening and at the same time imports coming in below MIP price where there is a trade remedial action, this requires to be relooked or analysed and monitored appropriately, thereby domestic industry is not hit.
Q: Tell us about your financials then, give us some kind of guidance going ahead. You have reduced your debt by around Rs 1,400 crore for this quarter. Come the end of this fiscal what should your debt look like and are you planning on taking more debt, because there is a quite few steel plants out there domestically and internationally that are on the block? What is JSW Steel looking at?
A: If you look at first half year we have made earnings before interest, tax, depreciation and amortization (EBITDA) of over Rs 6,200 crore, whereas in the entire last year FY16 last year we made Rs 6,000 crore EBITDA. That itself is showing that we are doing far better than the competition as regards to overall financial performance. At the same time when we announced our results for the last year, we said we will bring down our debt and we will improve our ratios. In line with that as on September 30, 2016 our debt has come down over March 31 and also over June 30. Debt was Rs 43,900 crore net debt which is lower by Rs 1,400 crore.
Our weighted average cost of debt has come down by 9 basis points. It is 7.59 percent our weighted average cost of debt. In addition to that we wanted to bring it down further going forward by March 31. Our debt-equity and debt to EBITDA have improved significantly, which 5.69 as on September 30 debt to EBITDA. In this quarter we have bring it down below 4.8, similarly debt to equity 2.15, we are managing our financial ratios and the balance sheet in a manner where we will be able to grow in future much faster than what we have done in this year.