Two iron ore mines will start production in March: JSW Steel

JSW Steel is poised for better times with steel prices going up and sourcing iron ore from captive mines becoming a reality though weak demand posing a major challenge. Demonetisation, which has come as bolt from the blue, is both a positive and negative for the industry. Seshagiri Rao, Joint Managing Director, JSW Steel spoke to BusinessLine on the company strategy to combat the challenges. Excerpts:

What is the impact of demonetisation of steel industry?

Demonetisation will have a positive impact on both the economy and the steel industry. But there are issues in the short-term. There is lack of liquidity in the market; the market is expecting circulation of new notes to ease pressure. However, there are limits on withdrawals from banks.

The goods and services available in the parallel economy will now flow into the mainstream and pull down prices. On the positive side, this will give the RBI an opportunity to cut lending rates.

What is the logic behind stock split at this juncture?

It is a decision taken to address retail investors’ concerns, who have said the share price has gone too high, thus making it difficult for them to invest.

For instance, if one share sold at ₹1,700 is split into 10 shares with face value of ₹1, then its value will become ₹170 and it will attract more retail shareholders. Liquidity will also increase.

Today, we have 24.1 crore shares in the market. With promoters holding 41.5 per cent, the free float is 58.5 per cent, including the 15 per cent held by Japanese steel maker JFE.

If we take out the JFE’s holding as it is not available for trading, the free float is about 10 crore shares. The stock split will increase the free float shares to 100 crore. It will also increase FII participation.

Will promoters increase their stake after stock split?

Promoters have been increasing their stake in the company. Promoters’ holding came down to 34.5 per cent after the merger of JSW Ispat with the JSW Steel and dilution to JFE. It has already increased to 41.5 per cent. They may increase their holding, but as of now I have no idea.

What are your plans on mining in India?

We have bought five category ‘C’ iron ore mines in Karnataka. We will invest ₹150 crore this fiscal and another ₹100 crore in next fiscal. Of these five mines, two will be operational by March and rest by December next year.

We have also won Moitra coal mine in Jharkhand in the auction. It is supposed to be operational by 2019 as per the mining plan, but we intend to start production by 2018.

Since it is not an operating mine we have to take approvals, get forest clearances and acquire land.

How do you see the impact of coking coal price in India?

Steel companies margins are under pressure, with the unprecedented trebling of coking coal prices. The demand at present is weak.

In the first seven months of this financial year, India produced 5.5 million tonnes (mt) more of steel. So if you see GDP numbers, steel performed extremely well to register a 10 per cent growth.

Now, the question is who consumed the excess supply when demand was not robust. If you analyse the numbers, we replenished imports to an extent as it came down by 2.9 mt.

We exported 1 mt more as compared to last year. So, domestic demand actually went up by only 1.6 mt. In India, the annualised production is about 95 mt and the installed capacity is 125 mt.

Is MIP helping the industry?

Steel imports have come down by 40 per cent, but the expectations were that it would fall by 50 per cent. Still, imports are at 6 lakh tonnes per month. It is surprising that 32 per cent of the total imports are happening below MIP. Unfortunately, we do not get data on what category imports are being done to ascertain how it was shipped in below MIP. Of course, exporters can bypass MIP, but there is no data available on this right now.

Is time to review MIP on steel as engineering exports are falling?

It is always easy to blame MIP on steel for falling exports. It has to be looked at in a broader sense. The global trade has come down significantly because demand has fallen. Even maintaining $22 billion in exports every month is a great achievement.

If someone wants to evaluate exports from India, it should looked in volume rather than in value terms.

I do not think quantity-wise exports from India would have come down significantly. The same is true with steel. Earlier, steel was exported at $700 a tonne; today I’m shipping it at $400. I have to export 1.7 tonnes more to get the same value.