‘Steel prices have already bottomed out’

‘While lower steel prices may impact a part of the quarter, this will be offset by softer raw material prices.’

Off the back of the India story, JSW Steel has laid out an expansion plan to increase its capacity from 28.2 million tonnes (mt) to 37 mt by 2024-25 (FY25), with further ambitions to reach 50 mt in the medium term through brownfield expansion.

It also has its sights set on strategic acquisitions — from coking coal assets in Canada and Australia, as well as assets from Vedanta and NMDC Steel.

Jayant Acharya, joint managing director and chief executive officer of JSW Steel, tells Ishita Ayan Dutt/Business Standard in an interview that the company will approach acquisitions selectively as long as they are value-accretive.

JSW Steel’s revenue and net profit numbers in the first quarter (Q1) of 2023-24 (FY24) were ahead of Street estimates on a year-on-year basis.
But sequentially, the numbers were lower. What is the outlook for the second quarter (Q2) of FY24?

In terms of earnings before interest, tax, depreciation, and amortisation (Ebitda) per tonne, Q1FY24 was better than the fourth quarter (Q4) of 2022-23 (FY23), thanks to higher realisations from value-added steel and improved geographical mix.

We also managed to mitigate some of the increase in coking coal costs through better blending.

However, in Q2, while lower steel prices may impact a part of the quarter, this will be offset by softer raw material prices.

With expected improvements in volumes, we anticipate better absolute Ebitda numbers.

Furthermore, it appears that steel prices have already bottomed out.

What is the outlook on foreign subsidiaries?

In the last quarter, our foreign subsidiaries achieved an overall Ebitda of Rs. 570 crore, mainly driven by increased volumes in the US, particularly in Baytown and Ohio.

Looking ahead to Q2, there might be some margin pressure in Ohio due to falling prices, but Baytown shows promise with better orders and prices.

Additionally, Italy is expected to perform well due to a strong influx of rail orders.

What kind of investment will the next leg of expansion from 37 mt to 50 mt entail?

The planned 13 mt additional capacity will come from brownfield expansions, making it a cost-effective endeavour as some infrastructure and facilities are already in place.

These projects are akin to low-hanging fruit.

As for the 50 mt target in the medium term, we expect India’s overall economy to treble in the next 10 years, driven by the government’s focus on infrastructure development.

This, in turn, will lead to a significant rise in steel consumption, reinforcing our direction for expansion.

On the coking coal front, there appears to be a lot of action. Has JSW Steel bid for Canada’s Teck Resources?

While we are indeed looking for iron ore and coking coal assets to ensure raw material security, our primary focus is on domestic assests.

We have already secured two coking coal mines in India and plan to operationalise them.

For international assets, we are exploring opportunities in Australia and Canada to achieve backward integration.

While we have evaluated assets like Canada’s Teck Resources, we are not in a position to make any official comment at this point.

You were also looking at some mines of BHP.

BHP has put up some mines for disinvestment, and we are evaluating these assets as well.

We will carefully assess their strategic and economic viability before making any decisions.

Vedanta’s steel and steel-making raw materials are under strategic review. Does that acquisition opportunity interest JSW?

It is still early days as Vedanta has just initiated discussions and put some assets on the market.

However, raw material assets hold more appeal to us.

Nevertheless, we will conduct a thorough study of all the assets before making any concrete decision.

What are the raw material assets?

They have iron ore mines in Karnataka and Goa. And the steel plant is in Bokaro, Jharkhand.

I think the Karnataka mines will naturally be of interest to us.

But we will have to study and understand the dynamics around other assets and then be able to take a view.

You had put in an expression of interest for the NMDC Steel plant. Have you decided whether you are going to go ahead with a bid?

At this stage, the technical due diligence is ongoing, and the data room has been opened.

Valuation discussions are in the early phases. We prefer focusing on brownfield expansion, considering the lower specific investment cost, unless a strategic opportunity emerges that necessitates integration.

JSW Steel’s net debt increased to Rs. 66,797 crore in the June quarter (Q1FY24), from Rs. 59,345 in the March quarter (Q4FY23).
But you are adding about 9 mt capacity by FY25. Are you prioritising growth over debt reduction?

Our debt went up because of working capital addition. It will come down from where you see it at the closing of Q1FY24, even with the additional Rs. 3,000 crore from the Monnet merger.

The company’s capital expenditure plan of around Rs. 20,000 crore will be primarily funded from internal accruals, enabling us to manage growth without sacrificing debt reduction.

The net debt to Ebitda ratio improved to 3.14x in Q1FY24, from 3.2x in Q4FY23, and JSW Steel remains committed to prudent capital allocation.

Feature Presentation: Aslam Hunani/Rediff.com

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