JSW Steel guided a 19 per cent sales growth in FY 23 despite imposition of a tax which rendered export challenging going forward. Joint MD and group CFO Seshagiri Rao explains to The Telegraph how the company plans to achieve the target and the rationale to carry on with the ongoing expansions despite the export levy that he hoped would be “temporary”. JSW would be a “volume story”he said, arguing the company would make up margin compression with higher sales. Excerpts:

• It has been a week since export duty of 15 per cent was slapped. How did the market react to it?

Retail market corrected quite sharply for both long and flat steel. While prices were falling internationally, the correction in India is steeper due to weaker sentiment. On the raw material side, NMDC reduced iron ore prices by Rs 750 a tonne and coking coal has come off too. For the steel plants, whatever export orders are already there, it will be very difficult to delay. There are shipments under loading or lined up, those will go. For the fresh booking, whatever the international prices are, that will be the price.

• Where do you expect domestic prices to settle?

The expectation is that prices will correct more. But distress sales which we saw in the past may not happen because steel companies are in a better place. There will be pressure for a month. Holding power of companies would be important. Inventories are getting exhausted in the market. After a month, customers have to buy. Now the landed cost of import is about Rs 62,000-63,000 a tonne for HRC. It will certainly come to that level and for the weak domestic sentiment, maybe some more. I feel it will settle at Rs 60,000 a tonne.

• How long do you expect the export duty to be in place?

A duty of 5-15 per cent was put on in 2008 when inflation went up in India. It was 5 per cent on coated, 10 per cent on the long and 15 per cent on flat, in contrast to 15 per cent now for all categories. Duty on flat products was withdrawn in 1 month and long products within 5 months then. Russia and China are two other countries that put restrictions on export in the recent past. Russia withdrew within 5 month in 2021. Based on India's precedence, we expect this time also the measures are temporary to contain inflation and may not last long.

• The industry has changed a lot from then on…

Yes, the capacity was 59 million tonne (mt) in 2008, compared with 149mt now, a growth of 2.5 times. Production was 54mt compared with 120 mt in FY22. While import went down 30 per cent to 4.8 mt from 7mt export went up from 5.45mt to 18.4 MT in FY22, a 237 per growth. Consumption went up from 52mt to 106mt. The Indian steel industry created capacity, met domestic demand, reduced dependency on import and then created new export markets. However, the consumption has not gone up as much as production creating dependency on export. I would also like to highlight that export has gone up from 2016 onwards only, becoming a net exporter.

• Do you expect exports to continue?

I don’t see exports coming to zero. We can not stop serving the customer and then go back to them again when duty is lifted. (JSW’s export ranges from 15 to 30 per cent, 28 per cent in FY22) depending on domestic demand).

• How do you plan to meet the sales guidance of 24mt (compared with 201.7mt in FY22)?

There are two aspects. We exported about 4.5mt in FY22. Some of it would continue. The rest we will try to substitute the 5 mt of import coming to India. Even after that, we will have another 4mt additional volume. Now, India is likely to have an incremental demand of 8mt this year. So, we have to take half of the market, which in my mind may not be difficult since nobody else is coming up with additional capacity in FY 23.

• Will export still be remunerative under the present duty structure?

Margins are also a function of raw material cost. Iron ore prices have fallen and more can happen. Coking coal duty benefit we will get. Moreover, with steel prices correcting globally, I don’t expect raw material prices will hold. Yesterday there was a $55 a tonne fall in coking coal. This quarter could be a problem because we have old inventory at a higher rate but not subsequently.

• JSW’s consolidated net debt has come down by Rs 10,000 crore in in Q4 to Rs 56,560 crore. Will you hold on to this level?

This quarter the debt may go up because we will hold higher inventory. But at the end of the year, it will be around this level but mind you after spending Rs 20,000 crore in capex.

• But margins may be compressed going forward.

JSW’s game is volume. While EBIDTA per tonne has come down by Rs 4,300 per tonne, the absolute EBIDTA has gone up by 1 per cent. The same story will play out this year. While EBIDTA per tonne will come down, absolute EBIDTA would be stable.

• Is this why you are continuing with expansion?

Of course, it is not possible to stop them midway. Groundwork started, orders are placed and LCs (letters of credit) are opened. And second, we hope the duty will be temporary. The brownfield expansion of 5 mt in Vijaynagar will be complete by FY24. In Bhushan Power & Steel, expansion from 2.7mt to 3.5mt o be completed by September and to 5 mt by March 2024.