There should be a comprehensive infrastructure investment board to promote investment in the steel industry under the Ministry of Steel.

V R Sharma, Managing Director, JSPL

JSPL is a leading Indian infrastructure conglomerate with a presence in the steel, power, and mining sectors. With an investment of approximately 12 billion USD (90,000 Crore Rupees) across the globe, the company is continuously scaling its capacity utilization and efficiencies to contribute towards building a self-reliant India. “There should be a comprehensive steel financial institution to iron out the challenges in capacity creation in the steel sector, states VR Sharma, Managing Director, JSPL. In an exclusive telephonic interview, Sharma throws light on the scope and potential of the steel sector. Excerpts from the interview…

Could you brief us on the current market trends for the Indian Steel Industry and the demand-supply scenario from different verticals for rolled and flat products?

The current demand is very good, and I would say the best that I have seen in the last decade. The demand has already outstripped production. The good thing is that capacity utilization of the domestic producers has gone up and the majority of the big Indian producers are operating at 90 % of capacity. We expect the demand to further increase and I am very bullish on the continued growth. 

Which are the sectors that drive the demand for steel products?

The demand for flat products is stronger. Demand from the Auto sector alone has gone up by 30 per cent. Demand for other flat products like rolled and galvanised and colour coated products are good. The demand for wire roads has also increased significantly and the price is also matching with hot-rolled coil pricing. There is a shortage of quality wire rods as of today.

Post lockdown, we have seen a continuous increase in construction steel demand. The demand for rebars in the construction sector is robust, and we are unable to meet the demand for TMT bars. Demand for channels and angles has also gone up. 

In a nutshell, there is a demand for all types of products, the only difference is in some of the products we get very good sales realisation and for a few of products, it is moderate.  But still, there is a good margin.

What does the demand scenario look like for structural steel?

The demand for structural steel for construction of PEBs, stadiums, commercial buildings and railway bridges has picked up. There is also good demand from the Defence sector for steel bridges. We have a good order book for fabricated steel structures from buildings, power plants and other industrial segments. 

What is the scope augmenting the existing capacity to meet the demand, especially for rebars?

The capacity cannot be built overnight. The only thing is that the DRI/ EAF/IF based small and medium steel producers have to upgrade the technology and expand the capacity at the earliest. But they are facing hurdles on multiple fronts - the non-availability of scrap and pig iron is a major issue. Also, few steel producers have started to convert pig iron into steel, adding to the scarcity of pig iron. Nevertheless, since the market is very good still they can afford it by importing scrap from the rest of the world. They have more scope of producing DRI and sponge iron and can resort to importing scrap to feed the requirements. On top of it, they have working capital issues. In my opinion, in the next 7-8 months, there is excellent potential for them to increase production. 

How do you assess the investment scenario in the steel sector?

For the last few years, steel was not a preferred line of business for banks. Of course, they had some bitter experience from a few companies, which ran into NPAs. But that does not mean that the banking system should write off the entire steel industry. As per the concept paper of the Government of India, the consumption is expected to reach 300 MT by 2030. As of today, we produce 100-120MT, and from where we can generate the balance 180MT unless there is strong financial support from banks? 

What I suggest is that companies who have an impeccable record over the last five years should be given preference by the banks that they should invest in the capacity build-up. There should be a comprehensive infrastructure investment board under the Ministry of Steel, jointly owned by the Ministry of Finance. This investment board specially made for the care sector should decide on who should be given and how much of loan to augment the capacity. Otherwise, by 2025 we will be importing about 40MT steel in the country per year. So the major companies should be financially assisted by the government to further increase the capacity through brownfield expansion. 

But even if the major six companies put together to increase the capacity, still there is a huge gap.

That is true. It is here the government needs to chip in by bringing FDI for Greenfield projects without which the demand gap can never be bridged. The gap today is 160MT - if you put 10MT plants you need 16 plants; and if you put 5MT plants on an average, then you need 32 plants. So how can this be taken care of? Maybe by internal approvals the major six players can increase 10 per cent capacity by each, but still, it is 60MTonly - the gap is too high to be bridged. That is why I stress the fact that there should be a comprehensive steel financial institution to iron out the challenges in capacity creation in the steel sector. 

What has been the impact of the pandemic on the steel sector, and specifically on your business performance? 

The steel sector has already come out of the situation. As far as JSPL's performance is concerned, we registered the ever highest production in the first and second quarters. Production in H1 was the highest which means the impact was not with JSPL. 

Some of the companies suffered at the end of March when the lockdown was announced and also in April. But by May major producers were at 80-85 per cent plus capacity utilization, and by June the capacity utilisation of the major companies was 90 plus per cent. Logistics was an issue for mos of us and vendors were not opening the shops which initially created some problems but finally, the steel industry has come up thanks to the Ministry of Steel industry and the Government of India, who came up with lots of measures supporting the steel industry. For example, there is no import of steel from anywhere in the world, and that has helped the steel industry to stand up. 

JSPL registered a record 30% (Y-o-Y) growth in consolidated steel sales of 2.41 million tons in Q2FY21 as compared to 1.85 million tons in Q2 FY 20. We clocked 18% (Y-o-Y) growth in consolidated steel production with 2.35 million tons in Q2FY21 as compared to 1.99 Million tons in Q2FY20.

What further measures do you expect from the government to facilitate the healthy growth of the sector? 

From my perspective, the government must assess the current situation and initiate steps to encourage migrant labour to go back to work. There is scarcity of labour to support the post lockdown demand. That is a big issue.

Railways can play a vital role while bringing back the workforce from their village to the workplace by way of playing more and more trains. This will also help Indian Railways to resume its earlier operational utilization level. 

What is your outlook on this segment in terms of disruptive technology adoption in production and supply chain management?

On the manufacturing front, the adoption of advanced technologies is a continuous process. Each mill is to be improved step by step. We have travelled the level 1, 2 & 3 in automation; now we are moving on to phase 4 of automation. We are aware of the advantages of such tech-enabled solutions in the entire ecosystem, at the same time it takes time, and at JSPL the process on. On the supply side, these technologies can bring more efficiency. 

Our strength is manpower, and what is the immediate importance is to bring the labour force back to project sites that will bring back the industry to its full potential. To do so, firstly bring the Indian Railways back on track, this will attract at least 35 to 50 per cent of the migrant labour to go back to work. This will solve many problems. 

What makes JSPL so successful even during these testing times? 

We have reduced the cost of production which increased margin. We have increased our productivity and proximity to our customers. Most important, JSPL is an infrastructure steel company with immense flexibility to serve our customers. We are the only company to supply grade 1080 and grade 1175 rails for railways and metro projects. Earlier these were imported, and now we supply to all metro projects. We conceived this project in 2012 and commissioned in 2016. We are the fourth company in the world who can produce these kinds of speciality rails for metros and dedicated freight corridors. This has given us an edge over other players in the market. We also produce speciality plates for Defence for different applications, and today we are the largest producers of plates, about close to 2MT per month. 

What is your road map for the next couple of years? 

We firmly believe in the India growth story and want to contribute to it significantly. We are setting new production benchmarks for ourselves and would like to surpass them consistently going forward. We are ramping up sales & production, as India comes out of the lockdown effect and ramps up its economic activities towards a renewed growth path. Our sole aim is to come out of the debt burden and become a debt-free company, apart from increasing our EBITA by 2023.

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