JSW Steel surprised the market with stronger than expected first quarter results. Jayant Acharya, joint MD & CEO of the company, tells Sambit Saha of The Telegraph the momentum would continue, abetted by domestic demand and higher volume from expanded capacity. An excerpt:
The first quarter results, especially standalone, surprised the market positively. What led to this?
The strong India growth momentum supported us in the quarter. Our international operations also did well. Baytown, Texas, operations reported higher EBIDTA while the Ohio unit returned to black. Italian operations also did well due to rail orders and improved capacity utilisation. All put together, overseas operations added Rs 570 crore. We also have been able to mitigate the impact of iron ore cost by better value added product mix, higher export realisation.
However, sales volume in the Q1 sales were lower than the previous quarter. Why is that?
We could liquidate 0.35mt inventory in the Q4FY23 on the back of better demand. In contrast, there was an inventory build up of 0.33mt due to destocking in the sales channel in Q1. There was an impact of an adverse monsoon and cyclone. We hope to liquidate the stock in the coming quarters.
Will JSW be able to maintain the EBIDTA momentum in the following quarters?
It will be rangebound in the Q2. We benefited from the strong prices in the Q4FY23 that partly rolled over to Q1FY24. But prices fell month on month thereafter. The exit prices of June will play out in Q2. But lower steel prices will be offset by lower coking coal and iron ore.
JSW has guided to a sales volume of 25mt for FY24, translating into an average of 6.25mt a quarter. In Q1, you are behind the run rate. Will you be able to make up?
Our Q1 sales volume (5.87mt) is actually the highest ever for a first quarter. We will surely make up for the rest of the year. Steel demand is usually back-ended. Moreover, higher volume (from 3.5mt to 5mt) from Bhushan Power and Steel Ltd will also kick in then.
JSW’s net debt went up by Rs 7,457 crore. Are you comfortable with it?
There was inventory build up, locking up working capital. We also planned higher raw material procurement both at the plant as well as in transit for the monsoon months. They will reduce going forward. Also there was an impact of higher coking coal prices. These will be moderated in the remaining part of the year. However, another Rs 3,000 crore debt will be added due to the JISPL (erstwhile Monnet) merger. By the end of the fiscal, you will see a lower debt position.
There is a view that JSW prioritises growth over deleverage. Is this going to be the way forward?
Our capital allocation strategy takes both into account. Our capex is mostly from internal accruals. In Q1, we spent Rs 4,094 crore but our net debt to EBIDTA came down to 3.14x.
What is your outlook on steel prices?
I believe prices have bottomed out. There was an increase of $15-20 a tonne in the last two weeks. Henceforth it would be range bound with an upward bias.
Do you expect India demand to remain strong?
Absolutely. We expect India demand to grow by 10mt to 130mt in FY24. There will be an incremental demand of 40-45mt in the next four years. The capacity addition will be just in time to meet the additional demand from India.
