Promoter ban under IBC to bring consolidation in steel sector – Mr Naushad A Ansari
ET reported that even as domestic steel companies are trying to do their best to improve their efficiencies, their margins should stay under pressure, Mr Naushad A Ansari, CEO for Steel Business at JSPL. In an interview to ET Now, Mr Ansari though said that Ebitda margins for his company may stay where they are due to process improvement and commissioning of a new plant. Edited Excerpts:
ET Now - Do you believe that the recent recovery in steel prices globally has more to do with a rise in input cost or is it the China's output cuts that is playing out?
Mr Naushad A Ansari - If you look at the international scenario, the prices have in fact softened compared to what they were in September and October. The reason is well known. We expected a lot of reduction in China's steel capacity and that has partly played. But that has not worked for steel prices to that extent we were anticipating, as the billet prices came down in the Black Sea area because of the currency devaluation, and aggressive Iranian production.
Overall, prices have come down substantially. However, the impact of that on India has not been as big as it is internationally.
In India, even as steel prices have softened up, they are still let us say closer to about what it was there in June quarter. Going forward we do see that there is a cost push simply because for us iron ore, coal and electrode prices, as well as the factory prices, have gone up.
To counter that, even as companies are trying to do their best to improve the efficiency, the margins should be under pressure. We really expect that steel prices should stay where they were between quarter one and quarter two. This means, they could be better than the prevailing level.
ET Now - You said that steel prices are heading lower. Also, the discount to imported landed price has increased. How much have your average realisations come off?
Mr Naushad A Ansari - We do expect that our cost will come down substantially compared to the existing cost. In the Q4FY18 when Angul plant will be up and running, the Blast Oxygen Furnace (BoF)is going to be started by around second week of December. We do expect that our Ebitda margins to remain at the same level where we were in the September quarter. While the cost push is going to adversely impact, steel prices should improve in the fourth quarter.
For us, due to process improvement, the new plant which is going to be commissioned, we expect Ebitda margins to be similar to what was there in the last quarter.
ET Now - In the last few years, the domestic consumption also has been fairly poor. Moody's was talking about a single-digit growth in consumption for FY18-FY19 and FY19-FY20. Would you agree with this assessment?
Mr Naushad A Ansari - If you look at the construction sector, the growth has been not very good. It is much lower than what we really expected it to be. It is impacting the demand for bars and rods, and structural and plates, among others. In the next quarter, we do expect some correction in the demand pattern. We are quite hopeful because there is number of steps which are being taken by the government to increase the consumption.
ET Now - Now raw material prices as well have resumed their uptrend. But Goldman Sachs believes that iron ore prices will move to $50 again. Do you agree?
Mr Naushad A Ansari - Three-four quarters ago, when iron ore prices were ruling in the range of $46 to $50 level, most of the miners were facing difficulties in managing the scenario. expect iron ore prices should remain somewhere between S50 to S60 range. We also had several discussions with the miners and we all believe that $50 to $60 range is sustainable. Although Goldman Sachs is expecting $50 level, I do not see that happening this year. But once the mining additions come in, prices will certainly be under pressure. They will be closer to what Goldman Sachs is saying.
ET Now: Now your debt levels have been fairly stable at around Rs 45,000 crore which is fairly impressive, despite the higher working capital deployed in Angul. Do you think that there will be a marked reduction in your overall debt by the end of the year?
Mr Naushad A Ansari: So far we have been able to keep the debt at Rs 45,000 crore. It is because we have been able to rotate our cash better compared to what we were doing earlier. That is a companywide event, which is going on. Everyone is really very-very focused on making sure that the money comes back very quickly and we rotate it very quickly. As far as debt reduction is concerned, that is one of our highest priority. As of now, there are two areas where we are working. One is that we are making sure that internal cash accrual is there, which will go in for the payment of debt - both the interest as well as the principle.
Besides, we are already working on some other liquidation of assets. At present, I am not in a position to actually tell you what are the steps but I can only tell you this that we are looking actively at the possibility of further liquidating some of our noncore assets.
ET Now - I wish to get in your view on the recent amendment to bankruptcy code (IBC). The defaulting promoters will not be allowed to bid for stressed assets now. Do you think that we can see a consolidation ahead and this step may actually be beneficial for your industry?
Mr Naushad A Ansari - I do understand what the government is doing as of now. I fully support the bankruptcy code because I do believe that if there are people who are taking advantage of the system, should not really be allowed to bid for the assets which are under distress. I do expect that there would be a consolidation because the people who are bidding are mostly present in the country. Some of them will take these plants which are under I distress. And that consideration is actually good for the steel industry because it may bring more efficiency. Cost can also be reduced which will be beneficial for both the customers ; and manufacturers.
Source : Economic Times