Our Deleveraging Strategy Is To Sweat Out The Assets

As the domestic steel industry continues to battle a weak demand scenario, Ravi Uppal, managing director and chief executive officer of Jindal Steel & Power, remains hopeful the next government will pave the way for industry to respond to pent-up demand. In an interview with Aditi Divekar, he shares his view on various issues.

It was an underground mine, being jointly developed by Jindal Steel and Monnet (Ispat). Though we had the prospecting licence for a length of time to develop this mine, there are a lot of things like environment and forest clearances for which you are dependent on the government. We, as a company, are not into trading in either iron ore or coking coal. We typically use all this material to produce these into either power or steel. In our opinion, it is not a justified or fair decision. We had made the effort, which is well documented. So, we think it is inappropriate to de-allocate the mine. It is their (government's) version that we have not done anything on the block since we got it in 2009. We have done a huge amount of work.



Any mine that you take away is obviously linked to a project but then, as a company, you keep multiple projects under development. I can't tell you which project would have got affected but it was a coking coal mine and, so, was to go for a steel plant. We are importing coking coal from Australia and if we would have developed this mine, we could have used coal from here mine and done import substitution.



It is very difficult to say about the global market; it all depends on recovery in the US and Europe. The US has started to look up. This year, China is growing more than last year. Europe's is the only economy which is awaited now. So, I think the outlook for the next year is more on an optimistic note but I am looking more for demand within India. India has a long pent-up demand, which needs to unleash. I’m hopeful that after the election, we will have a stable government that will focus on growth of the economy.



Not quite. We have gone for a quantum jump. By end of this financial year, our total capacity will be 7.5 million tonnes per annum from 3 mtpa earlier and this was much needed. I know the kind of earnings we have; even if there is a temporary rise in the debt level, we will be able to bring it to the normal level soon. You might see a small peak in the debt but the business plan is very much under control and we don't see any threat. Since we are taking a leap in both power and steel, that is why you see this peak in the debt. But it will all come to a normal level.



Our deleveraging strategy is to sweat out the assets. Now, we have three to seven million tonnes producing in India and Oman. We are obviously going to make sure we sell every ounce of steel we produce. We are known in the industry to sweat out the asset to full potential. There is no major demand for steel at present but this is a passing phase. My personal view is that after the elections, there will be resurgence in economy and the long pent-up demand on projects will take off in a substantial way and we will have a boom.



We are always open to any acquisition but at this point, we are occupied in executing our own projects in Angul, Raigarh and Oman. Our strategy for acquisition outside is from the point of view of input material, critical for us whether it is coking coal, iron ore or limestone. It is to ensure our raw material security.



The Supreme Court’s forest bench has asked the Centre to file copies of the MB Shah panel report on illegal mining in Odisha and Jharkhand. In such a scenario, what would be the fate of the Stemcore asset sale? Doesn’t Jindal Steel has some expansion plan in these states?



I do not know the report’s contents. I don’t know which mines they’re referring to when they say illegal mining. There are hundreds of mines in Odisha and other states and I don’t know which ones they’ve looked into.



Why is Jindal Steel now entering the retail segment, given that steel is a commodity and producers like you are price takers? Can your success in the retail segment shield you from the cyclicity of the industry? Can it help you improve your operating margins from the current levels?



It is one of the best decisions to enter the retail sector. Only one company from among the primary producers is into retail. The others are not the way we are. We believe we would reach out to every retailer, to reach out to small and medium users. This segment is dominated by secondary producers, where the quality is quite poor, So, we feel primary producers have the responsibility. We are not only delivering; we are doing a lot of value-added services. Our margins are better in the retail segment compared to projects and so, yes, it will help.



More than that, we want a countrywide distribution and reach out to every consumer and give them value-added products. The more the customers, the more stable the market. If one geographical region has low or no growth, then the other market segment can compensate. It is always good to have a much larger base of customers than to bank only on large-project customers.



In the first nine months of this financial year, our exports have doubled compared to last year. It has helped us partly to make up for subdued sentiment on the home page. We will continue our thrust in the export market, as it broadens the base. India is a promising market but we don't want to rely on India alone. Our sales this year have doubled. We exported about 20 per cent from India and about 25 per cent of our revenue will come from international operations. By 2016-2017, almost 45 percent of our total revenue will come from export out of India and out of international operations.



We’re a young company, only about 25 years old. We are in three businesses. One is steel-cement, the second is power and the third is mines and minerals. Some of our peers could be only into the steel business. Also, we are more focused on profitable growth. We are not top line-driven, unlike our peers.



The power industry landscape is changing. I believe we will be selling 75-80 per cent in the long-term purchase agreement and 20-25 per cent will be in the open market. In India, the power industry is undergoing a major change and in about two years, will have stabilised. Today, we have an absence of transmission network, issues of distribution reforms. There are several issues which have to be eliminated and a well balanced power market has to emerge. Once that comes, I think we will be the one to harvest the maximum benefit.

Source:- business-standard.com