JSW Steel’s decision to transfer a slurry pipeline to a group company raised eyebrows from analysts. However, JSW Steel’s joint managing director & CEO Jayant Acharya told Sambit Saha of The Telegraph that the transaction would translate to higher IRR on capital, less execution risk and substantial savings. He also detailed the steel industry’s ask from the budget, the migrant skilled workforce issue, the company’s performance and prospects in FY25 and its stand on RINL divestment. An edited excerpt:

In the first quarter, JSW Steel’s profit came below market expectations. Why?

Domestic sales in Q1 were the highest, growing by 14 per cent. Value added and special products also grew. But it was negated by price correction from the second half of May, in part due to higher exports from China. There were some one-offs too. Inventory loss was ₹1,430 a tonne which is an accounting practice. We had a gain of ₹330 crore in Q4 and now there is a loss of ₹500 crore as prices came down.

Also, we had some one-time expenses like the cost of shutdown. Overall, the impact was ₹2,000 a tonne. PAT also factored in a higher effective tax rate at 37.17 per cent due to overseas operation even as India business has a 25.6 per cent tax rate. However, structurally, JSW Steel has become much stronger today, we can manage the stress environment better.

JSW is growing aggressively, but simultaneously trying to manage rations, improve the net sales realisation, volumes. Shutdowns are complete, the debt has many capital works in progress which will be unlocked now. Benefits from a growing country like ours are really large, which JSW will be able to seize.

How do you expect the second quarter to go?

Our volume from existing operations will now improve quite a bit. In H2, you will see better performance from stabilised existing operations, improving capacity output from the new capacity. So therefore, we are fully on track on the volume guidance which we have given. My feeling is that going forward, our EBIDTA per tonne will improve in the coming quarter, because our cost management will be better.

How do you think the steel prices will move?

We feel the prices will remain range bound. It is difficult to forecast, given the high intensity of exports from China and Vietnam, We see China is exporting to Vietnam, which is being re-exported to India at zero duty. The FTA imports are increasing into the country at zero duty. While the industry is putting in heavy capex to be more self-reliant, we would expect, at least unfair trade diversion at predatory prices to be restricted.

Is that going to be your number one ask for the budget on Tuesday?

Jayant Acharya: Yes, (from) Indian steel industry, one of the ask will be to look at these measures. The duties had come down over time from 12.5 per cent to 7.5 per cent which can be relooked.

We would look for trade measures and also a quick time response to avoid damages. We also hope that manufacturing will get promoted in India.

The 15 per cent tax incentive which was given to encourage manufacturing was good. The government can look at extending that. The last piece would be overall consumption support because the government has the fiscal space today.

The steel demand seen in Q1 despite the election was really a bit of a surprise.

You’re absolutely right. There will be a double election-digit growth in this year. So there will be 148-150 MT, an incremental increase of 12 - 14 MT. India is a multi-decade opportunity.

Absence of migrant labor has been an issue. Is it really hurting / delaying the execution of large projects like yours?

Post Covid, many people have gone back home and realigned their workplace to closer home. And as various states are growing, opportunities are coming in each state and people are realigning themselves. During elections, holidays, heat waves, they go back and it takes more time for them to come back. So that is a disruption.

Getting a skilled workforce is a challenge. Our contractors and we are training the workforce, trying to give facilities to them and encouraging to stay back. For a large project, these disruptions do impact.

But as the country is growing, more capacities are coming up. Naturally, the draw on the skilled labour will be higher, so, therefore, more skill development, more workforce development training and support will be required.

It appears analysts struggled to understand the rationale the company put out on the slurry pipeline slump sale. So, if you can explain how this is going to work for JSW.

We want to do capital allocation in a prudent manner for our growth in steel projects and in the raw material security area. We can expand the brownfield at a low specific investment cost below $500 per tonne whereas in many parts of the world it is at $1,000 per tonne.

Moreover, we need to work on raw material security, specifically hard coking coal from abroad and iron ore from domestic sources.

On top of that, we want to do this slurry pipeline to reduce our logistics cost. There the projects also include grinding, beneficiation, filtration at the mine head and a pellet plant of 8 MT capacity at Paradip.

JSW Infrastructure is a port and logistic solution company, for them to do this logistic (pipeline) project, gives us space to allocate this capital to many of our projects where IRR will be higher. Also, if we have to execute all these projects parallelly, any kind of business stress can result in delays and cost increase.

But will you still be able to save up on logistic costs?

We expect the ₹900-1,000 per tonne saving from the pipeline project, which should be complete by 2027, aligning with the pellet plant.

If I turn to the Mozambique coking coal project, do you have an estimate for in-place and recoverable reserves?

The reserve is around 800 MT and recoverable is 280 MT. However, we have to get multiple approvals before we can start work.

Ok. In India, the RINL divestment is again gaining momentum with the new state government backing privatisation.

It depends on the nature and the content of the disinvestment. It’s a port-based facility. So naturally we will be interested as other steel makers.