JSW Steel Cash Conservation to Tide Over Weak Demand
JSW Steel annual report highlights the company’s strategy to combat the fallout of COVID-19. JSTL plans to ramp-up exports to 30% of sales (v/s 21% in FY20 and 16% in FY19) to compensate for weak demand in the domestic market. JSTL is planning targeted cost savings, supported by technology and digitalization, to reduce the cost base across areas of operation. Employee costs have already been cut, with FY21 likely to see flat manpower costs despite the new capacity at Dolvi. Capex has also been curtailed, with FY21 planned at INR90b v/s INR102b in FY20. Planned capex of INR487b over FY18–22 is, however, only halfway through and likely to spill over to FY23 and beyond. This is attributed to the company’s current focus being on conserving cash. Leverage has risen further in FY20 to 5.7x net debt/ EBITDA with an INR64b YoY increase witnessed in net debt to INR629b (USD8.4b), a key concern. We estimate net debt to rise further to INR676b in FY22 on weak profitability and capex plans. However, the debt maturity profile is comfortable, with 63% of long-term debt due for repayment after FY22. While INR139b of long-term debt (23% of the total) is due for repayment in FY21, we believe it should be comfortably managed with refinancing as well as cash and cash equivalents in hand of INR120b as of Mar’20.