India’s largest private sector steel producer returned to profit in the third quarter, backed by higher domestic sales and lower costs even though it was a steep fall from the same period of the last fiscal. In a post results interview with Sambit Saha of The Telegraph JSW group CFO and joint MD Seshagiri Rao said the fourth quarter would be much better as the cost will remain in check, exports are going to be higher and realisation could go up well. He confirmed submitting an expression of interest for NMDC’s steel plant. An edited excerpt:
What led to the reversal from loss to profit?
Volumes. We had the highest ever domestic sales (5 million tonnes). Overall volumes could have done better if the export had kept pace. But it came down 32 per cent (1.8 lakh tonne) sequentually. Then cost. While net sales realisation fell 5 per cent, cost went down 14 per cent. The cost of coal came down by $101 a tonne and power costs fell. We have gained close to Rs 5,000 a tonne. Contributions of the subsidiaries, domestic and overseas, were just Rs 10 crore as EBIDTA in Q2. It was Rs 517 crore in Q3. We have improved but not as desired.
Export duty was lifted from mid-November. When can export go up?
We have to book at least one month in advance. So, we did not get much time in Q3 to accelerate export. In this quarter, we hope to compete strongly in the export market.
How much volume can you export in Q4?
We did about 1mt in Q3FY22 compared with only 0.38mt in Q3FY23. During Q4FY22, it was 1mt as well. So, it is possible to export about 1mt in a quarter. In this quarter, it may not be 1mt but much much higher than the Q3.
Like the previous quarter, you suffered some forex and inventory losses in Q3. Will they continue in Q4?
We had booked inventory and forex loss of Rs 984 crores, which are Rs 1,750 a tonne. Out of which, Rs 246 crore is related to FX. If these losses were not there, my base EBIDTA / tonne is Rs 9,800. We don’t expect the FX loss to be there in Q4. But there may still be some inventory loss but may not be to the same extent as in Q3.
Will JSW meet the sales guidance for FY23?
We had given 25mt production and 24mt sales. But it has now been tweaked as JSW Ispat Special Products (formerly Monnet Ispat) and JSW Ohio would not be able to meet the target. We will do about 22.6mt sales and 23.6mt of production.
How much inventory are you holding and what would you be comfortable with?
We are now holding 2mt. JSW usually holds about 3 weeks inventory. So, we have to reduce inventory 0.6mt, to be cleared this quarter.
Which means there will be a release in the working capital and net debt may come down?
Correct, that’s why we are guiding the net debt to come down from Rs 69,500 crore, with the release of working capital coupled with higher cash generation, by end of March.
So, you expect margins to be better?
Yes, it will be because the cost may still go down a bit, volumes will be substantially higher and realisation will go up too.
How do you expect the subsidiaries to perform given their losses in Q3?
Bhushan Power & Steel and JSW Coated Steel will definitely be in black. Italy will also do well. But the US operations may still take more time (to recover).
The NMDC divestment is underway and the government is seeking expressions of interest. Will JSW participate?
We had sought clarifications, and they have replied to a few of them. The data room has been opened. Later this month, we will submit EoI.
What are your expectations on the budget?
The budget for RoDTEP (Remission of Duties or Taxes on Export Products) is very limited. It should be increased. The budget should focus on infrastructure and growth. Thirdly, the government should remove duty on whatever is not available in India, such as coking coal. Last, we should ensure India does not become a dumping ground for imports.
