Vidya Rattan Sharma, Managing Director, Jindal Steel and Power Limited (JSPL) says that the domestic steel demand, impacted by COVID-19, will pick up by June 15. Sharma also spoke about how the company is planning to become debt free in this financial year. Excerpts from an exclusive interview with Moneycontrol:
We have seen a bull run in steel prices after almost a decade. Will this rally sustain further?
Yes, it will continue to be high. However, we must see the fundamental reason behind this high price of steel. You see the overall world scenario. From October 2020, we have witnessed an increase in prices of iron ore, scrap price and other raw material prices. The Price of scrap went up by $100 per ton in a month’s time. This trend repeated itself in hot briquette iron (HBI), directly reduced iron (DRI) and then in iron ore. From October 2020 to now, the price of iron ore has increased by 500 times. That has impacted the total cost of steel making and input delta has risen by $200 per ton, which works out to Rs 15,000 per ton. So, this is one of the main reasons for rise in prices.
The second is after COVID-19, many stimulus packages were announced by different countries, which has also fuelled the demand for steel. These packages are investments in infrastructure projects. Since around 30-35 percent steel is required in such projects, the demand has gone up worldwide. China, that used to export around 10-12 million ton of steel per month, has stopped exporting due to high domestic demand. In the United States, steel prices are at an all-time high, trading around Rs 1,300 dollar per ton to Rs 1,400 dollar per ton. Similar is the condition in Europe and South East Asia where prices are around Rs 1,050 to Rs 1,100 dollar per ton and Rs 1,000 dollar per ton, respectively. Now analysts expect that these prices may reach people at $1,200 per ton.
On the other hand, Indian steel prices are around $800 per ton, which is the lowest in the world. JSPL or any other company in the country is not selling beyond this price. Iron price has reached $200-$230 per ton internationally and lump iron ore is also high. And this situation will continue in the international market. In the domestic market, the demand has been tepid because of the lockdown and weather conditions, but otherwise, international demand is phenomenally high.
When do you expect domestic demand to revive?
We expect domestic demand to be normal by June 15. We are seeing COVID cases come down, which will give a major relief to customers and companies. The good thing is that today neither MSME (Micro, Small & Medium Enterprises) nor any other manufacturing unit has shut down due to the lockdown. Most state governments have allowed industries to be open, but they are not working at full capacity. Major industries are working at 60-70 percent capacity. Some infrastructure projects may resume after the second week of June. So, we expect domestic demand to come back after June 15.
What is the growth plan for the company?
We have a robust plan for the company for the next five years. First, we must become a net debt-free company in the next year. In the financial year 2019, we produced 5.5 million tonnes of steel; in the 2020 financial year, it had increased to 6.3 million tonnes and in the last financial year, we have crossed the 7.5 million ton per year mark. For the next financial year, we are planning to produce 8.3 million tonnes. On the debt side, the Company has reduced debt significantly. In 2016, our debt stood at Rs 46,000 crores, which has come down to Rs 19,300 crores. This year, the company has plans to bring it down in four figures to nearly Rs 9,000-Rs 9,500 crores. The company has a value of liquid assets, including cash or equity. The company will be debt free in the next one-year time. Though the working capital loan will remain there. So, our aim is 15-15-50 - which is EBITDA (earnings before interest, taxes, depreciation, and amortization) should be Rs 15,000 crores: debt less than Rs 15,000 crores and sales turnover more than Rs 50,000 crores. This is what we are aiming for and hopefully, we will achieve it in this financial year. In the next five years, the company will add 6-7.5-million-tonnes of capacity expansion. As the government has projected 300 million tonnes of steel requirement by 2030, the JSPL will certainly have some contribution to make there.
Under the expansion plan, how will you manage funds?
The company will not borrow any money from banks for expansion. What we will do is with our internal accruals. In the last financial year, JSPL alone made Rs 7,154 crores of net profit. We expect a similar profit in the next couple of years. So, we can manage expansion with this growth. Now our group philosophy is to earn and invest.
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