JSW Steel Ltd proposes to reduce its capital expenditure by over half for the current fiscal and go slow with its capacity expansion.
This is because the company is going through tough times with a huge debt burden of over Rs 18,400 crore in the backdrop of sluggish demand for steel.
JSW Steel had initially planned a capital expenditure of about Rs 8,000 crore for the current financial year. The company has spent about Rs 2,000 crore in the first half of the fiscal and is likely to reduce the capital expenditure by over half for 2011-12, an official said.
Profitability hit
The company's profitability in recent quarters has been impacted by the Supreme Court ban on iron ore mining in Bellary. The ban had forced the company to procure iron ore, the key raw material for making steel, at higher costs to keep its operations running, although at a lower capacity utilisation.
JSW Steel, which operates a 10.3 million tonne per annum (mtpa) plant at Vijaynagar in Bellary, had planned to increase its capacity by 2 mtpa by 2014. Now, the company proposes to defer the investments of Rs 2,500 crore planned for the expansion of Bellary unit and also its Salem plant.
Similarly, it also plans to defer the investments in expanding the capacity of subsidiary JSW Ispat, which it had planned to increase by 1 mtpa in 2013. “Investments in capacity expansion look doubtful in the current scenario,” the official said.
Bengal project
JSW Steel, which proposes to build a 10 mtpa integrated steel plant in phases at Salboni in West Bengal with an investment of Rs 35,000 crore, might go ahead with the planned soft launch of the project in January. However, it may go slow with the investments in the current environment.
The JSW Steel scrip hit a yearly low of Rs 520.10 on the BSE on Thursday before recovering to close at Rs 537.45, a loss of one per cent over previous close.
Pref warrants
Meanwhile, faced with liquidity issues, JSW Steel has decided to forfeit the initial deposit of Rs 529 crore paid for the preferential warrants, which are due for conversion on Thursday.
The current market price of JSW Steel scrip, which is at 55 per cent discount to the allotted price, has made the conversion unattractive. The company is expected to make an official statement on this on Friday.