JSW Steel move on fresh capacity addition with huge învestments comes at a time when steel demand in the country has plunged and the economy is limping. Uncertainty over plan to acquire Bhushan Power and Steel has added to its woes. In an interview with BusinessLine , Seshagiri Rao, Joint Managing Director, JSW Steel expressed confidence that the company's focus on value-added products will help it sail through the trough. Excerpt:

Is arbitrary modification of your resolution plan for Bhushan Power and Steel by NCLT a concern?

The issues raised by us with NCLAT seeking immunity from ongoing criminal investigation against the erstwhile promoter of BPSL and retaining profit in the company during the insolvency period is important not only for us but for other successful bidders. It ensures that the resolution applicant gets a clean company to turn around. At present, the government agencies are raking up old claims and getting into litigation with successful bidders. Section 238 of IBC says it has over-riding powers on all other laws. A similar provision is also there in the Prevention of Money Laundering Act. There is much confusion due to disconnect over which of these two law prevails over others. In spite of NCLT approval of a resolution plan, certain litigations are cropping up. Based on our past experience with Monnet Ispat, we have sought a complete immunity on future cases.

You have already tied-up Rs 19,700 crore to meet BPSL buy-out even while the case is going on for over two years. Is it frustrating and leading to financial loss?

It is not just loss due to paying out interest, but if a company locks up close to Rs 20,000 crore it has a significant impact on the company credit matrix. Though the money is not utilised, it becomes a drag on the financials. So indirectly the uncertainty has caused huge damage not only for JSW Steel but for all successful resolution applicant.

Is the steel demand reviving post-government announcement of incentives to boost the economy?

Demand has slowed in the last few months. In August the demand growth was 1.7 per cent against 7 per cent earlier. There is a sizeable slowdown across sectors. The government has announced many measures. What is really required is the credit flow which is completely chocked either from NBFCs, banks or mutual funds. This needs to be smoothened. There could be a debate on whether credit flow has stopped due to liquidity issue or solvency issue, but in reality, credit is not flowing to corporates or end-users. Not only retail sales but even OEM (original equipment manufacturers) sales are affected severely because there has been a push back from a consumption point of view. Inventories in the steel sector are over 14 million tonnes which are close to two months consumption. The inventory used to be 7 million tonnes last year. Imports are at elevated levels and exports are falling. The government should step up its expenditure and ease credit flow.

What is use in giving incentives to push exports when international demand itself is weak?

There are certain areas India can score due to competitive advantage over others. For instance, in textiles, Bangladesh, which is much smaller than India exports $35 billion whereas India it is only $17 billion even though India is the largest producer of cotton. Like that several sectors are not able to tap the opportunity. India has several constraints such as cascading impact of taxes which are not reimbursed, high-interest rate and higher logistics cost.

What is JSW Steel doing to tackle demand slowdown?

The company has seen several down cycles. We always focus on reducing cost, which is in our control. We have increased iron ore supply from our captive mines. We have set up a coke oven plant that will reduce coke imports. Our focus on the digital area has also helped us reduce cost. Steel selling price is not in our control.

Are you planning to cut capex in this slowdown?

Our capex programme was announced two years back, and we are in the last leg of the investment cycle. We will be completing a bigger portion of our capex of Rs 15,000 crore by March 2020. We will get an additional five million tonne capacity, and there is also an increase in portfolio of downstream offerings. We have enhanced capacity in value added products such as tin plate, galvalume and colour coated and will have additional capacity when the demand improves. The other contribution of value-added in down-cycle would be Rs 2,000 per tonne, and in upcycle, it can go up to Rs 4,000 per tonne.

Are you planning any production cut with high inventory in the industry?

As on date, there are no plans for production cuts. We are just watching the developments. Generally the second half of the financial year is always good for the industry. We hope government initiatives will revive the economy besides good monsoon will boost rural income leading to better demand. We will watch the demand in the December quarter and take a call on production cuts.

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