Thought leadership: JSW Steel’s MD and Group CFO share insights on JSW Ispat amalgamation with JSW Steel and future guidance
The results were in line with the consensus estimates for the quarter. However, discloser of the amalgamation scheme between the joint venture JSW Steel and the subsidiary- JSW Ispat was the surprise news for the market.
Seshagiri Rao shared his opinion on this amalgamation deal.
He believes that by merging JSW Ispat with JSW Steel, there are significant benefits that would come to both companies. He informed that JSW Steel has four iron ore mines in the state of Orissa. Out of them, two are captive mines and two are merchant mines. Seshagiri Rao disclosed that JSW Steel is not able to supply from its captive mines due to the restriction that captive mines cannot sell their material to JSW Ispat. Due to this restriction, they are forced to supply from merchant mines which are far away from JSW Ispat sites. This problem is leading to huge freight for the company. He believes that once JSW Ispat comes under JSW Steel, they would be able to supply from captive mines and save a large amount of freight.
Seshagiri Rao also highlighted that this amalgamation can help reduce JSW Ispat’s current administrative and fixed cost of Rs 12.5 crore per month by 15%, a saving of Rs 22.5 crore per year for JSW Ispat Steel. Rao also expressed that JSW Ispat has slab making capacity but lacks slab rolling capacity. A few years back, JSW Steel had acquired Welspun’s rolling facility. He believed that this deal would be a good value addition for JSW Steel by procuring slab from JSW Ispat. He also shared another amalgamation benefit regarding interest cost reduction for JSW Ispat. Seshagiri Rao believed the interest cost for JSW Ispat would come down by at least 1% when JSW Ispat becomes a part of JSW Steel.
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