JSW Steel posted robust numbers in the second quarter, driven by a gradual recovery in the domestic market and strong price for the metal. Sambit Saha of The Telegraph caught up with Seshagiri Rao, joint managing director and CFO of the company, who exuded confidence that steel would continue to do well for the rest of the fiscal, backed by unexpected pull from the automobile and appliances industry. An edited excerpt:

JSW had a stellar show, recouping the loss of the first quarter. Can the momentum continue?

If we look at the steel demand supply scenario in India and globally, I believe the momentum will continue.

China produced 4.5 per cent, or 34 million tonnes (mt) higher than last year from January-September, driven by a $550-billion stimulus package, 50 per cent of which is going to construction and infrastructure. During this period, China’s export has fallen 20 per cent to 40mt from 50mt.

During the same period, imports have gone up over 200 per cent, from 7.6mt to nearly 23mt. This means China is sucking steel from the global market while also increasing the production.

In the rest of the world, there is a lower production of 78mt. But if total production is considered, it is down 44mt. This indicates that places where demand is slower, production is also lower. But in countries such as China and South Korea where demand is strong, production is going up too. — This is bringing harmony to the market and balance in steel prices.

How does India look compared to the world?

Here demand had fallen 50 per cent in the first quarter, while it is down 10 per cent in the second quarter. So, overall it is down 30 per cent in the first half.

India on an average consumes 25mt every quarter. So far, 15mt is down in the first half but only 2mt in the second quarter compared with 13mt in the first quarter. So, making up the 15mt in these quarters may not be possible. But we will reach the last fiscal level from this quarter.

What will be the drivers of growth?

Nobody expected automotive to be the growth driver — be it two-wheelers or passenger cars — 33 per cent year-on-year and 392 per cent quarter-on-quarter jump. JSW has 80 per cent of the best quarter in terms of auto steel sales. For commercial vehicles, everyone is looking at the scrappage policy by the Centre. If that comes, demand will shoot up.

I also think that the rural economy will drive the recovery and steel consumption — good monsoon plus government intervention. Strong demand came from roofing and colour coated sheets, which had the highest EBIDTA ever for us. Auto contracts will be reset with effect from October. Auto and appliances are 20 per cent of the sales. We will have better realisation from the auto contract going forward.

Would JSW be able to meet production and sales guidance?

Do not think of any problems on the sales side (target 15mt), but not sure about production. We lost 1.2mt of production in the first quarter which could not be recovered in the second quarter. Iron ore availability was a big issue.

India had produced 110mt iron ore in the first half of the last fiscal compared with75mt this year. Odisha alone contributed 30mt of the shortfall. But the export of iron ore has gone up 10mt, to 20.3mt. Moreover, 3.7mt of pellets was also exported. So, the availability is down 48.5mt.

In contrast, there was a 12mt shortfall in steel production, which translates to 17mt demand contraction for ore. So, there is a net supply shortfall of 30mt. JSW somehow managed to maintain because we started four mines in Odisha from July 1. It could have been a disaster otherwise.

Out of the 19 mines which were auctioned and handed over in March in Odisha, only five could be operational, including four by JSW and one by ArcelorMittal.

The companies who lost the mine had a chance till October 31 to clear the dump. So, they are very aggressive in moving material, paying any amount to the truckers, blocking the logistic chain.

Even if we increase our production at the mines, we are unable to evacuate. If the time to move the dump is extended, the industry will be in a soup. We have to run at 100 per cent capacity to achieve a production target of 16mt. That may be difficult because of ore shortage.

JSW faced delay in completing expansion at Dolvi because of Covid. Would it now be able to meet the year-end target?

Absolutely. Dolvi work is in full swing. There are more than 15,000 people at the site. Our capex is about Rs 9,000 crore, including Rs 800 crore for Odisha.

JSW reduced net debt by Rs 1,635 crore in the second quarter. Can we expect more deleverage going forward?

We cleared 4.75 lakh tonnes of inventory, releasing Rs 1,300 crore into the system. We accounted Rs 400 crore in relation to our liabilities towards foreign currency debt as rupee appreciated. We reduced working capital limits to that extent.

Finance costs also went down on foreign currency loans because of the reduction in Libor rates. Our forex loans are Libor based — which has been reset to 0.30 per cent from 1.5 per cent. Foreign currency loan is 54 per cent of overall loan, of which floating based loan is 75 per cent.

Our rupee loans were also reset based on MCLR. Weighted average cost has come down from 6.08 per cent to 5.81 per cent quarter-on-quarter. But a similar trend may not be possible going forward because of inorganic growth and capex lined up. However, our relative ratio of debt to EBIDTA will certainly improve.