JSW Steel earmarks Rs.20,000 crore for capex in FY23

The steel companies may be in a state of flux due to the export duties imposed on Indian iron ore and steel pellet exports. But that has not deterred the big steel companies in India from going aggressively after big capex plans.

One of India’s leading steel manufacturers, JSW Steel of the Jindal group, has earmarked a sum of Rs.20,000 crore for capital expenditure in FY23. The underlying optimism on steel demand continues for JSW.

The assumption appears to be that temporary headwinds like the recently imposed export duty on steel combined with high coking coal (a key input for steel manufacture) prices may be short lived. However, JSW expects the price of steel to remain buoyant on the London Metals Exchange.

That probably explains why the company continues to be so positive about going ahead with its rather aggressive capex plans.

JSW Steel CFO, Seshagiri Rao, has confirmed that notwithstanding the challenges like export duties and high coking coal prices, the capex plan was intact. They saw most of these as temporary headwinds and not having any major long term impact.

In FY22, JSW Steel had earmarked Rs15,000 crore for capex. In addition, it had also paid Rs19,000 crore to buy out Bhushan Power and Steel. For FY23 also, the figure excludes any inorganic growth plans.
 

One big concern with any major capex is the likely impact on debt levels. For example, JSW Steel has confirmed that the debt may not go up meaningfully from the current levels of Rs.56,700 crore as JSW Steel is also in the midst of using internal accruals and other means of asset monetization to repay debt to the extent possible. JSW Steel is expected to benefit from the lowering of customs duties on coking coal, a key input for steel manufacture. 

On the subject of export duties, the CFO of JSW Steel is of the view that temporary duties are fine. However, if such duties continue for long then they may lead to sub-optimal use of existing capacity of nearly 150 million tonnes of steel in India.

The steel industry, on an average, targets about 12-14% of its total sales coming from exports, so if that business segment is disrupted then it will surely impact the capacity utilization in a big way. 

In FY22, steel exports stood at 18.37 million tonnes, so it is sizable share of total steel output. India is already the second largest manufacturer of steel in the world after China. JSW Steel has aggressive plans to ramp up its steel capacity to 37.5 MTPA by FY25 and 45 MTPA by the year 2030. The current steel manufacturing capacity of JSW Steel stands at 21.47 MTPA. In FY22, JSW Steel had seen 9% growth in exports.