JSPL To Pass On Higher Input Costs To Customers
JSPL eyes capacity expansion of 8.5 million tonnes per annum.
Jindal Steel and Power Ltd. will pass on the impact of the recent increase in iron ore and coking coal prices to customers, in an effort to protect its margins.
Prices of iron ore and coking coal, essential raw materials used for making coal, have been on an uptrend which will trigger an increase in steel prices, JSPL’s Chief Executive Officer NA Ansari told BloombergQuint in an interview.
The full impact of the higher prices, which stands at Rs 2,000 per tonne according to the company, cannot be absorbed and will have to be passed on to consumers, Ansari said.
Capacity Utilisation
The Naveen Jindal-led company is also looking to ramp-up its capacity utilisation, as it has successfully commissioned a basic oxygen furnace, used for converting iron into steel at its key Angul plant in Odisha. With this, JSPL’s overall capacity in India will increase to nearly 8-8.5 million tonnes per annum, said Ansari.
The blast furnace was running at about 50 percent capacity before the commissioning. Now we are in the process of ramping it up. By the next quarter, we expect to reach almost 90 percent of capacity.NA Ansari, CEO, JSPL
While the plan to sell non-core assets to pare debt is on the cards the company is already on schedule to repay its debt with a current debt to equity ratio at 2:1, Ansari said.
Commenting on whether the company is still classified as a non-performing asset, as reported by Financial Express earlier, Ansari said that the NPA-status was assigned on account of “technical issues” and idoes not hold true anymore. “In one particular bank, there are some issues yet to be resolved, the remaining banks have been very supportive,” added Ansari.
Watch the full interview here.
Here are edited excerpts from the interview.
What is the demand, supply and pricing scenario in the steel business?
Iron ore prices have gone up substantially. They have almost doubled in certain parts of the country. Additionally, the coking coal prices have gone up as well, due to which our cost impact will be over Rs 2,000 per tonne. Going forward, I expect steel prices to rise because nobody can absorb this cost.
As for demand, we see an upward swing in the construction business in the country. We also expect government initiatives to start fructifying by next year leading to higher demand for construction grade steel. We are not only in the construction business, but also manufacture steel pellets and similar products. As for pellet demand, it is quite steady which is a fairly large business for us. We are positive that the impact on our cost will be absorbed by the market.
How much will your cost go up by on account of higher iron ore and coking coal prices? Will you be able to pass all of it on to consumers?
I expect the price to go up by Rs 1,800-2,000 per tonne depending on the route that people follow. We expect most of the price hike impact to be passed on to the consumers because the steel plants will not be able to manage otherwise.
What is the update on the Angul plant expansion and how will its commissioning boost your financials?
We have commissioned the blast oxygen furnace at the Angul facility last month. The BOF operations have started and the process is going on smoothly. When one undertakes such an operation, it usually takes weeks to stabilise and we are in process of stabilising the furnace. The furnace commissioning will make sure that the integrated plant starts working at full capacity.
The blast furnace was running at about 50 percent capacity before the commissioning. Now we are in the process of ramping it up. By the next quarter, we expect to reach almost 90 percent of the blast furnace capacity.
What’s the current scenario on the debt front?
Despite increasing production level and increasing our capacity, our debt level has not gone up. Currently, there is zero overdue. We have mapped our entire repayment schedule and interest payment schedule and we are confident to meet it. In order to make things easier we are working on certain non-core assets which can be monetised. I cannot disclose details on the assets because they are still work in progress.
What is your current debt to equity ratio like?
The current debt to equity is 2:1, or roughly in that range.
When did you get back on schedule in terms of debt repayment?
It’s been about 8-9 months. Ever since we went for debt restructuring, we continued to take steps to remain current on debt repayment.
Are you technically classified as an NPA? And if you are do you have any visibility on how quickly you will come out of that classification?
With regards to the NPA status, there was a technical issue with one or two banks, on account of the 5/25 scheme. But since it was a technical issue, the banks are supportive. We have already come out of the NPA classification in the case of one bank. With another bank, the case is still pending but we are sure that we will come out clean as it was not a default on our part, but only the question on the amount of time taken to restructure the 5/25. That was the basis of the RBI action (taken while classifying JSPL as an NPA). Since the debt repayment and interest payments are done, we are sure to come out of the issue.
But are you currently classified as an NPA or has that classification been taken away?
No, we are not classified as an NPA in most banks. There is only one particular bank which has some issues yet to be resolved.
What quantum of deleveraging will you be able to do over the next one year?
In Oman, we are going public to sell some shares. But the process will take some time and will not happen immediately in the next six months. So we don’t expect anything substantial to take place over the next six months. But our ability to repay debt and interest is clearly identified based on our expected revenue and operating profit. We are sure we will complete our payments. Going forward, in a period of a year or so we should be able to show the results of our actions.
Have you planned any capex in the months to come?
A balancing activity is required on our part. For example, we need to put coco and battery, but it does not stop our production in any way. It’s only for supporting us as it is better to start making certain items on our own, instead of purchasing them from the outside. So, besides some balancing, the rest of things are already done.
With Angul commissioning, what numbers are you aiming at by the end of this fiscal in terms of production and estimated sales?
With Angul BOF commissioned, we should be adding another half a million tonnes of steel in the market this quarter onwards which we intend to produce and sell. A majority of the impact will come about in 2019 when the capacity utilisation will be much higher than what we have been doing. In 2019, we expect combined capacity utilisation to be somewhere around 8-8.5 million tonnes.
Is there any fundraising slated to happen in January or in the current quarter?
There is something which is unscheduled, that we had promised the banks to undertake. That process is on and we should be doing it an additional fundraising in January or February.
Are you happy with the current valuations?
I expect the valuations to keep going up, as nobody can be happy at the current levels. The projections have been done already, and we expect that it will help us in getting fair valuations.
Your current capacity is just over 6 million tonnes, and you said that you will attain 8 million tonnes of capacity by the end of 2018-19. Is that correct?
In Angul, the capacity will be 5 million tonnes, now that the commissioning has been done. In Raigarh, the capacity utilisation is over 3.5 million tonnes. So, in India itself, the capacity will be close to 8-8.5 million tonnes. Combining that with 2 million tonnes capacity from Oman, it will become 10.5 million tonnes. In Angul, we are at a ramping-up stage and have close to 95-100 percent capacity in Oman and Raigarh. Thus, we expect to be able to do more than 8 million tonnes of capacity as we go ahead.
What is your analysis of how the competitive scenario of steel will play out over the next six months to the next couple of years?
Most likely, there will be a lot of consolidation in the Indian steel business from the existing players and probably from outside as well. The small players may have issues, but for larger companies like us, any consolidation will help in the long run.There are a couple of issues plaguing the steel industry today, like the issue of iron ore prices going up, and issues with the logistics movement of steel as there are steel limitations in the country. So, consolidation will give a better voice to the entire steel industry and we should be able to work together as far as the infrastructure and other things are concerned. We are looking forward to that kind of consolidation and we think that it will be beneficial for the steel industry.