Post-poll pickup in capex will drive steel demand: JSW Steel CEO

Edited excerpts follow:

Net profit has declined almost 65 percent YoY in the fourth quarter, despite steady revenues. What's the story behind these numbers and should we be concerned about the way ahead?

There are no concerns going ahead. After the last quarter (October-December '23), we had guided that the coking coal cost, and cost in general, was going up. We had said that the cost of coking coal would go up by $20-$25. It went up by $22. And steel prices were weaker because of higher imports, especially from China. It was a pre-election quarter, so there was some de-stocking in the domestic market. However, we got an export opportunity  and were able to  liquidate 3,00,000 tonnes in Q4.

Our consolidated sales volumes in Q4 was 6.73 million tonnes (MT), our highest quarterly sales ever, a 12 percent growth over the previous quarter. FY24 also saw our second-highest EBITDA, highest ever production, and highest sales. Our overseas subsidiaries did very well. Overall, I would say it was a very good year with a one-off in Q4.

Having said that, in Q1 and Q2 FY25,  we see that the cost of coking coal is coming down. We expect $22 to $27 of correction in coking coal prices in Q1. Along with other efficiencies and an improvement in steel prices, which has been seen internationally and domestically as well in April-May, we expect better margins in Q1. For the full year as a whole, the margin improvement will be similar to what you have seen in the last nine months of FY24.

Can you share more on how margins are looking going ahead, in India and overseas?

In Ohio, they have reduced their losses from a volume perspective, and reached stable operations. We are expecting Ohio to do over a million tonnes in FY25. Baytown has also been doing well. We expect Baytown to do better in the full financial year. So, US operations will continue to do better.

Italy has orders from Italian railways and from the European and export markets. We expect Italy to also  be in the range of the EBITDAs we have been seeing in the past year.

Indian operations will be aided by higher volumes, specifically from JVML's (JSW Vijayanagar Metallics) integrated operations, which are getting commissioned. The hot strip mill got commissioned in March and has already started manufacturing. The integrated facility should be up in the next two months. We have completed the phase two expansions in BPSL (Bhushan Power & Steel Limited).

With this and some de-bottlenecking in Vijayanagar, we will be able to add about 8-8.5 MT of capacity by the end of this financial year. Some impact of this will be seen in FY25, while the  full impact will be seen in FY26.

India's steel demand prospects are stronger than China's because of its faster GDP growth. How do you see this impacting India, because while the good news is that India demand may remain strong, this could potentially lead to Chinese steel getting delivered to India?

Globally, demand is expected to go up by 30 MT this year. China is expected to be flat and the rest of the world will consume the extra 30 MT. India will comprise almost 35-40 percent of this incremental demand, around 12 MT in FY25. Indian growth momentum is very strong. We are very positive about the India story, both as an economy as well as steel. And our capacities, which are growing, are in line to meet the domestic demand. I think the decade ahead will be India's,  and the steel industry is well placed to take advantage of this situation.

In FY24, you lowered the planned capex to Rs 18,000 crore from Rs 20,000 crore. You finally closed the year  at around Rs 17,000 crore. What happened? What will the FY25 capex be ?

We have not curtailed any of the growth capex or cost-saving projects that we had scheduled. There were certain areas in which approvals were pending where we had budgeted for capex, which did not materialise fully during the year. Therefore, the spend was less. Also, the spend was a little lower in the normal and sustainable capex that we had planned.

This year, our capex plan is 20,000 crore. The board has approved the phase 3 expansion at Dolvi, which is a 5 MT integrated steel project. We will be starting now and operations should commence by September 2027. With that, our total capacity will be close to 43 MT. We will be going towards a 50 MT capacity target, which we had mentioned earlier, and are well on track. Most of the capex is being planned through internal accruals, as in the past.

At an  EBITDA of Rs 28,000 crore-plus, our cash flows for  FY24  were strong, and we have spent only Rs 17,000 crore of that last year; so, we are quite well placed. This year, additional volume will result in additional cash flow. We don't see any concern at all.

The board has approved an NCD (non-convertible debenture) issue of Rs 7,000 crore and equity issue of Rs 7,000 crore. Group company JSW Energy raised Rs 5,000 crore via a qualified institutional placement in April. Are you planning to duplicate that?
This is an enabling resolution as the earlier approvals have expired. As of now, we don't have any plans to raise any equity at all. As some of the debts mature, we may look for strategic opportunities which may come up.

The company’s net debt-to-equity ratio declined to 0.93 at the end of Q4, from 1.02 at the end of Q3 FY24. Net debt as of 31st March 2024 stood at Rs 73,916 crore, lower by Rs 5,305 crore from the previous quarter as you re-calibrated the capex. With a capex of Rs 20,000 crore planned for FY25, would these ratios and debt figures go up?

As we allocate capital towards growth, we are focussing on ensuring that our ratios are stable, prudent. The net debt-to-EBITDA and net debt-to-equity ratios have come down. We are well placed on both and our focus will be to see that these ratios are stable or improve. Going forward, the debt will be range-bound. If we are able to generate cash flows in excess of what we have planned, we should be able to reduce the debt. We continue to allocate capital towards growth in a prudent way.

The board approved the acquisition of Minas de Revuboe Limitada (MDR), which will give you access to more than 800 MT of premium hard coking coal reserves in Mozambique. By then will this supply start? At what price?

This is a pre-development mine in Mozambique with 800 million tonnes-plus of reserves; it is one of the largest prime hard coking coal assets. We have decided to acquire 100 percent, and will be closing the documentation soon. We expect, subject to the approvals and processes and conditions precedent, to close this in this financial year, after which we will take up development of the mine. This mine, being in close proximity to India, will provide not only prime hard coking coal, but also give us a logistics advantage. Therefore, we will have a cost advantage.

How much have you paid for this?

We are just finalising the agreements, but it will be up to $90 million for 100 percent of the asset. The value is likely to be a little lower than 90 million, and we will be acquiring between 90 to 100 percent  of this asset.

Are any more acquisitions in the pipeline to secure coking coal or even iron ore?

Raw material security is  important. We have been focussing on our raw material security vis a vis  iron ore and have been looking at acquiring mines in India. The number of mines we have acquired in the last 1.5 years has been quite substantial. We now have 24 mines with total resources of 1.6 billion tonnes. This will hold us in good stead during our expansion to 50 million tonnes and beyond. Our focus will continue to be on acquiring mines in locations where our plants are present, so we can add to our capacities.

Coking coal is important and we were keen to look at international assets as well as domestic coking coal. With the three coking coal mines that we have, we will be able to produce about 2 million tonnes once they are operational.

International assets, like the one in Mozambique, will help us acquire prime hard coking coal. The coking coal index is most volatile, and has probably been rising faster than other indices. That's something we wanted to have in our control. That's where Mozambique fits in. We will look at operationalising Mozambique soon as the agreement is closed, and develop the mine.

The board  has approved the  procurement of a hybrid renewable energy generation capacity of 600 MW (200 MW solar, 400 MW wind), along with 320 MWh of battery storage capacity at Vijayanagar, to be commissioned by Q3 FY27. Are you looking for more?

We have previously guided that we would like to replace our fossil fuel with renewable energy. We had already planned for 1,000 megawatt (MW) of renewable energy to be installed across three locations, most of it in Vijayanagar (being done by JSW Energy). Of that, some of the solar facilities in Vijayanagar are already operational. Another 600 MW will commence operations in the next few months. We should have this 1,000 MW fully operational by the second half of this financial year.

The hybrid capacity and the battery storage capacity will be at Vijayanagar. With this our total renewable capacity will move up to 1,600 MW, which will take care of 26 percent of the requirement at  Vijayanagar. We are working on becoming more sustainable and reducing our carbon footprint.

When we spoke after the Q3 results, you had said that there may be some dip in domestic demand given that work slows down during elections. With the elections already underway, are you seeing any impact on demand in the Indian market?

With the code of conduct in place for the elections, there are restrictions on government  spending. So, prior to elections, you see some destocking. Post elections, we expect a strong pickup in capex in the infrastructure, manufacturing, and energy sectors. We are very positive on the India growth story, and the strong momentum we have seen will result in more steel consumption. That's why we are focusing on adding capacity and we will continue to do that in a prudent manner to be able to meet  domestic demand.