Debt should reduce, may consider equity issues to raise funds: Bhushan Steel CFO

Nitin Johari, CFO, Bhushan Steel Ltd, told NDTV Profit that the company’s volumes grew by 46 per cent during the fourth quarter of 2012-13. “We expect our debt to reduce going forward. We may look at equity issues to raise funds,” he said.

Below is a complete interview. Also watch the accompanying video.

Net sales have increased 46 per cent on year-on-year (YoY) basis. What has been the reason for such a big increase?

We started our Orissa operations last year and the growth from the Orissa operation is basically from hot rolled coil (HRC) sales. Auto and downstream has done very well and both have contributed well. That’s the reason this particular growth is driven by volume and volumes have grown by 46 per cent, leading to an increase in our sales. 

Other income is down to Rs 6.17 crore from Rs 37.87 crore (YoY). Earnings before interest, taxes, depreciation and amortization (EBITDA) margins are marginally better on (YoY) basis but the profit after tax (PAT) is up 15 per cent. Can you guide us through these numbers?

The EBITDA margin is more or less same, there is hardly any change. The PAT has gone up by 15 per cent because of high interest cost and high depreciation for the quarter, mainly because interest has gone up by Rs 70 crore and we capitalized certain projects, which were under implementation.

What is the average realization and EBIDTA per tonne in the fourth quarter? Has it increased or decreased on the YoY basis, and what are the reasons for the same?

If you see, EBITDA per tonne has gone down. Last year, EBITDA per tonne was Rs 15,000. This year, it is Rs 14575 per tonne. So, a marginal reduction of Rs 500 in the margin can be seen. But the volume growth has been good and that’s the reason the profit for the quarter is better by 15 per cent, so it is around Rs 331 crore as against Rs 288 crore last year.

What is the current debt on the books for the company? Any plans to decrease it going forward? If yes, how do you plan to do it?

There are two things. We know that there are few projects that are going on and we need to complete those projects, which are a combination of debt and equity. So once we start the next phase of the project, which is going to start sometime in October-November, the turnover and profitability will change in the next two years and debt will reduce drastically. In the meantime, we are also contemplating if the market remains good maybe we will do some equity where debt ratio can be reduced. So, we are taking appropriate steps and hopefully things will be better in the coming years.

What is the update with regards to your new plant in West Bengal?

We have already said that we are not going ahead at the moment with the West Bengal investment.

Economy is slowing down. How is the demand from your key customers like autos, consumer durables and original equipment manufacturers (OEMs)?

Everyone knows that the economy has slowed a bit and we have tried to correct the position, but as far as steel and volumes are concerned we have been able to sell what we produce and if you see the numbers in the last quarter, we have grown by 45 per cent in terms of the volume. Also if you see the industry, we have outperformed the industry and hope to grow at least 20-25 per cent in the future (in terms of volume growth).

Your HRC capacity is expected to grow from 1.9 million tonnes per annum (mtpa) to 4.4 mtpa in FY13. Is it on track or are you facing any delays?

It is more or less on track. There are no delays. 

You have been allocated a captive iron ore mine in Orissa. What is the status with regards to forest clearance and land acquisition? When can we expect mining to start from this mine?

Recently, we have got the forest approval from the ministry of environment and forest and we have started prospecting of the mine and thereafter mining lease process will start. This is beyond our control because all the approvals are with the government. We are quiet hopeful that in next two years, we are in a position to start this mine also. There will be no land acquisition in this case because this land is owned by the state government so we have the advantage that no land acquisition is required.

 You source your coking coal from BHP Billiton, Australia. Mining tax has been implemented in Australia. Has the price hike been passed to you by BHP and how will it affect your financials?

This has nothing to do with pricing because ultimately the taxes are on the profit and not on the sales. Secondly, pricing is done worldwide, it is not only a particular company or particular reason and it is market driven.

Can you give us a sense of the new export plans. Which markets are you going to tap?

We have not decided. We are a large export company. We did exports of Rs 15 crore and we will decide when it comes to production.