Steel Authority of India Ltd's September quarter profits were dented by high input costs and a weak rupee in a sluggish market. The company is, however, bullish on the demand pick-up in the second half of the current fiscal. The Chairman and Managing Director, Mr C.S.Verma, believes that the rush to achieve targets on various projects in the terminal year of the 12th Five-Year Plan would trigger demand for steel in the remaining period of current fiscal. Excerpts:
Considering that global prices are softening, do you think the recent hike is sustainable?
We have increased prices by Rs 1,000 a tonne in the middle of October after a gap of almost eight months as input prices have gone up. We had good sales in October and the same price levels continue to prevail. The rupee has depreciated by more than 15 per cent and as a result, steel imports are virtually nil in the country. There is a slight mismatch in demand and supply as private sector units are facing issues with raw material supplies. We hope to do good business in the second half.
Historically, we have seen a brisk demand in the second half for the last five years. We are seeing a demand pick up. We are operating with one of the lowest stock levels and expect demand from all sectors. This is the terminal year of the 11th Five Year Plan and there will be a rush to complete targets on various projects that will trigger spending. Typically, the first year is a lean period and the last year of a five year plan is a brisk period. We are witnessing demand from construction, infrastructure and road among others.
Now that your follow-on public offer (FPO) has been dropped, how do you plan to fund your capital expenditure?
We never planned to use the FPO proceeds for our capital expenditure. Two-third of the expenditure will be met from internal resources and the rest will be met through borrowings. We do not have any set borrowing plan. We will keep borrowing on and off and keep repaying. If borrowing is more costly, we will invest from our internal resources. I have to see which is more cost advantageous to the company. Our total borrowings, including foreign currency loan, stand at Rs 23,518 crore, whereas our cash deposits are Rs 15,142 crore.
What is the capital expenditure that you have already incurred?
We had planned a capital expenditure of Rs 12,600 crore and have already spent Rs 4,500 crore. The rest will be spent in the second half. Raising of debt or equity will depend on projects we have in the pipeline. We are comfortable with our debt-equity ratio. Today, our borrowing capacity is about Rs 79,000 crore and our borrowing potential stands at Rs 55,000 crore.
Your modernisation plan is in fairly advanced stages. Will it have any bearing on the total output in this financial year?
We plan to start couple of allied units such as cold roll mill in Bokaro and steel wire rod mill in the next quarter. However, quantum jump in output will be next year when two of the three blast furnaces in Rourkela and Bokaro will be fired. That will increase our output by about 6 million tonnes in the next fiscal. We also expect to commission the IISCO unit in Burnpur in the first half of next year.