Billionaire Sajjan Jindal-headed JSW Steel plans to ramp up iron ore production from its captive mines as it becomes costlier to buy it from the open market. The steelmaker targets to meet 51 per cent of its iron ore requirement through production from captive mines by March 2021. At present, 27 per cent of the ore supply happens from captive sources, says Seshagiri Rao, Joint Managing Director and Group CFO, JSW Steel.
"By end of this financial year, about 85 per cent of the iron ore requirement for the Dolvi plant will be met through supply from captive mines. Salem plant will get entire requirement of ore, while the Vijayanagar plant will get much lesser 35 per cent of its requirement from our mines. Overall supply will be 51 per cent of the requirement," he added.
JSW Steel acquired four iron ore mines -- Jajang, Nuagaon, Ganua and Narayanposhi -- in Odisha in February. These mines have 1,131 million tonne reserves, which constitute about 60 per cent of the whole reserves of iron ore in Odisha. Once these four blocks function with full capacity, it is expected to produce around 36 MT per annum and meet about 70 per cent of its requirements. The steelmaker has three more mines in Karnataka where availability is going up from 4MT to 7MT.
The rise of steel price is helping the producers with captive mines at present to improve the margins. The international price increased 16 per cent in Q2. However, the iron ore prices also spiked in parallel because of high demand in China.
JSW Steel posted a 37.77 per cent year-on-year (YoY) fall in net profit at Rs 1,593 crore for the quarter ended September 30. Total revenue increased by 9.63 per cent YoY to Rs 19,264 crore. The company achieved an average capacity utilisation level of around 86 per cent for the quarter vis-a-vis 85 per cent achieved in the second quarter of the previous year.
JSW Steel has reduced its consolidated debt by Rs 1,600 crore in Q2 to Rs 52,900 crore. Excluding the acquisition cost for Bhushan Power & Steel and Asian Colour Coated Ispat, the steelmaker will not engage in any major capital expenditure that can increase the debt, said Rao. "Most of our major investments, including the capacity doubling to 10 million tonne at Dolvi, will end in this financial year. The remaining projects will be less capital consuming," he said
The company plans to bring down the debt to EBITDA to 3.75 times by March 2021 from the present 4.73 times. "JSW Steel will be the major investor in newly acquired entities, but we will not consolidate them with the flagship company. For instance, JSW Steel will spend for the equity portion of the acquisition of Bhushan. But the debt will be raised on the books of Bhushan and it will have to make the repayments from its cash flow," he said.
JSW Steel, among India's top two makers of the alloy, raised $500 million through an offshore bond and Rs 4,000 crore through non-convertible debentures (NCDs). JMD Rao said that the capital buffer will help them weather the market volatility unhurt. "This fund is not for acquisitions. We had created the capital cushion for acquisitions in the last financial year itself," he added.
Rao said that the steel demand is surging, especially because of the high orders form automobile, solar, appliances and packaging industries. As the domestic demand picked up, JSW Steel reduced its low margin exports -- which reduced to 28 per cent in Q2 from 57 per cent in Q1. It increased the sale of high-margin value added products in Q2 and helped in enhancing the EBITDA. Value added products constituted 51 per cent of JSW's sales mix in Q2, compared to 38 per cent in Q1.