Rashtriya Ispat Nigam Ltd, also known as Vizag Steel, is an Indian government-owned steel producer and a Navaratna. R. Shankar spoke to Sandeep Menezes on the blueprint for expanding India’s steel capacity to 300 million tonnes on one hand and RINL’s own expansion plans in coming years.
RINL has notched up a turnover of Rs.10,406 crore in first 10 months of 2013-14, representing a 3 per cent growth over last year. Going forward, what will be the scenario?
Going ahead, the growth should be same level if not more because in the last two months our production is expected to pick up because our maintenance schedules have been done. I mean all enablers are in position. Availability will increase and therefore we should be doing better.
Can you throw light on RINL’s expansion plans?
The expansion of Vizag Steel Plant is from 3 million tonnes to 6.3 million tonnes. Due to internal modernisation, capacity building and adjustments that have taken place at the existing plant, there will be an additional 1 million tonne capacity. Therefore, our production capacity will be 7.3 million tonnes. All the equipment is in an advanced stage. In fact, some of the units have already been commissioned.
As we move towards 2014-15, all our production capacity expansion will be available for the market to consume. However, the impact of 6.3 million tonnes will come a little later since the existing plant is going up for modernisation. Since we already have a facility on hand, we are able to take this up or else we would be saddled with a situation wherein we would continue with the existing facility. The impact will come later but it will add another 1 million tonnes.
Our outlay for expansion is Rs.14,800 crore and we are nearly on target.
Recently, Crisil revised its rating outlook on RINL’s long-term debt from ‘stable’ to ‘negative’ predicting weak demand and subdued profitability.
I am sure that Crisil would have taken into consideration their understanding of future steel market. If you look at the steel scenario today, we will be one of the first to commission brownfield expansion. But then you have to consider investments, working capital requirements and market conditions. Crisil must have taken all this into account but this is always subject to revision.
There have been reports about RINL facing a slight cash crunch due to rising raw material prices.
We did not face any cash crunch for running the plant. But we had a long-term proposition to take working capital borrowing from the banks because we were expanding and needed some dosage. We had postponed the decision for a long time.
In the meantime, let me reiterate that we did not fail in any of our commitments to the government in terms of dividend payments or repayment of outstandings. The banks borrowings are part of our plans for the future.
I do not see any cash crunch. In fact we are investing from our own profits; we never borrowed from anyone for capex.
Demand slowdown and overcapacity has loomed large on Indian steel industry’s profitability. How do you see the situation emerging?
It is a great opportunity that has come to RINL because today we are in a position to think of exploiting our port-based facility; therefore becoming a major exporter of steel for the country. All developed economies which are major suppliers of steel have faced an oversupply situation at some time; it is bound to happen.
We have not been looking at supplying to domestic markets through coastal routes which could be a major opportunity for us vis-à-vis others. This could come as a major advantage for us since the Railways will not give us a doubling of our throughput; it is impossible to expect it.
Do you feel that the cost competitiveness of India’s steel players, excess domestic capacity and a weak rupee will lead to increased steel exports?
The exchange rate getting weaker is only an icing on the cake. What really matters is quality as well as the quality of customers that we look for. We should be looking at what we can provide by value addition and high quality. We need to push out the oversupply situation and get more into exports. This is a huge opportunity for us.
Union Steel Minister Beni Prasad Verma recently spoke about a blueprint being under preparation to expand India’s steel capacity to 300 million tonnes.
This is an absolutely correct decision since it goes with the nation’s policy of generating more employment opportunities; the utilisation of resources in a better way. Also, considering that the per capita steel consumption in this country is much below world average, there is a huge opportunity to fill that gap and grow.
There is also an opportunity to develop all sorts of special steels or different application oriented steels that were till now being imported.
The promise of allotment of iron ore mines in Bayyaram (Khammam), Guduru (Warangal) and Bheemadevarapalli (Karimnagar) has still remained on paper.
We have a limestone mine in Telangana. We don’t see any hurdles out there except that we will be working in another state. We own those mines; they have been allotted to us; therefore we will be using it.
The iron ore portions of mines are not standalone that can be taken run-of-the-mill and used. We will be constrained by the volumes which it can offer us; I mean how many years it will last us. Normally we don’t invest on something that will not last us 30 or 40 years as there is no point in it. Therefore, we need to look at how best we can utilise those mines or if they will be of any use at all.