Liquidity, labour and logistics are the key challenges: JSW Steel's Rao

Topics JSW steel | JSW Group | Lockdown

The stimulus package is good, particularly, the Rs 3 trillion guaranteed by the government for MSMEs. That has to be translated into extending money on the ground to the industry, says Seshagiri Rao of JSW Steel.
Amid a challenging environment, JSW Steel has been able to ramp up capacity to 85 per cent. In an interview with Aditi Divekar and Ishita Ayan Dutt, Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel, says liquidity, labour and logistics are the key challenges. Edited excerpts:

What are the current challenges in ramping up capacity?

In plant operations, many precautions have to be taken for the safety of employees and in maintaining protocols. The major issues we are facing are lack of drivers and logistics. Also, there are no workers in port area or at the customer sites for unloading. So, liquidity, labour and logistics are the key challenges.

Migrants are leaving for home. What is the impact on your steel business?

On the operations side, there is no impact, as these workers are treated like company employees and are provided with all facilities. On the project side, however, we are severely affected at all sites, especially at Dolvi plant, as it is close to Mumbai. Just before Covid-19, Dolvi housed 15,000 workers and we had only 5-6 months of work remaining, which we thought we would complete before monsoon. Now the strength has dwindled to 3,500 workers. It is uncertain when the workers will come back.

Would you look to hire locals given that there is a shortage of labour?

We need skilled labour and so cannot hire randomly. Also, there are workers who had left early and are willing to come back. However, there are no adequate facilities available for their return. Hope, the government looks into the return of labour just as they are looking at sending them back home.

What is the current capacity utilisation and what percentage is being exported?

We are operating at 85 per cent. Domestic steel demand in April was down by 90 per cent, so majority of sales was exports. In May, we are seeing a demand recovery from 10 per cent in April to 25-30 per cent. But export dependency remained high.

Several large domestic firms are looking to raise funds after RBI announced measures to up liquidity in the system. What are JSW Steel’s plans on fundraising?

Only banks or LIC in India can meet our requirement of long-term loans. Therefore, we rely on overseas market for long-term finances where we are raising through different sources of finance such as bonds, ECB and even advances from customers, diversifying the loan book. As on March 31, 2020, our foreign currency loans stand at 54 per cent of the total.

Is the stimulus enough or more support is required?

The stimulus package is good, particularly, the Rs 3 trillion guaranteed by the government for MSMEs. That has to be translated into extending money on the ground to the industry. The numbers released by the RBI on Friday showed that the credit growth to the commercial sector had come down 1.1 per cent, which is about Rs 1 trillion.

Is the steel sector looking for policy interventions, especially on imports?

The steel sector is basically looking for a few things. First, demand that will come indirectly from the announcements in the government package.

The other thing is credit to the steel sector, which is continuously coming down. We have been representing to the government for specialised long-term funding agency that can lend to the core sector of the economy, including steel.

The peak exposure of the Indian banking sector to the steel sector between one and half years back and now has gradually come down.

Right now, it is Rs 2.5 trillion; a year-and-a-half ago it was Rs 3.26 trillion. The third point is imports. It should not be at a price that it hurts the domestic industry.

What is the outlook on steel consumption?

Last year, the consumption of steel was 100 million tonnes. Considering the destruction in demand in the first few months of the year, it is likely to be in the range of 90 million tonnes. But as demand is falling, there has been a supply side adjustment as well. In April, production fell by 69 per cent. That means many secondary players were not able to restart or ramp up production.

Your overseas assets have been a drag on your balance sheet for quite some time. Would you exit these investments?

No, we are not looking to sell any of our assets. All the three assets — two units in the US and one in Italy — will turn around. The US government has taken necessary steps to revive the economy.

Amid the Covid-19 chaos, are any JSW Group businesses running smoothly in the backdrop of the challenging environment?

There is no problem in the power business at all. There is also no liquidity issue after the government announced Rs 90,000-crore liquidity to discoms (electricity distribution companies). In ports, our utilisation is over 90 per cent. Lot of exports is happening and ports are doing well.

In steel, the business scenario is improving, and in May, our capacity utilisation has gone up to 85 per cent. Our cement business has picked up better than steel in terms of volumes. Demand recovery from the roads sector and other less steel intensive segments are helping cement demand pick-up. Our paints business, however, is still to recover. Industrial paints segment is in a better position but decorative paints category is yet to recover.


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel