Sustaining June quarter volumes looks difficult because of steel dumping by China, Korea and Japan, coupled with shrinking domestic demand, says RK Goyal, MD, Kalyani Steels .
“As far as the margins are concerned we have made a good change in our product mix," Goyal says, adding, "the prices of alloys have gone down and at the same time we could enter into certain fixed price contracts; so there we did not have to give some price deduction and this has helped us protect our margins.”.
Speaking to CNBC-TV18, Goyal says if the government does not support the industry it will die over a period of time, adding “so, this (Make in India) is a tough time till the industry becomes equally efficient and at least, be able to compete with countries where there are certain benefits which are extended to the industry.”
If India gains efficiency in controlling logistic cost, energy cost and in the way mining is done, the cost of manufacturing will decrease for the domestic steel producers, he says.
“At the same time if in a country like China, they have over production or the local demand is less, for them it is very easy to even dump at a very marginal cost hence the prices are very low and if local industry has to compete against that then they will be under additional stress,” he adds.
Below is the transcript of RK Goyal’s interview with CNBC-TV18's Anuj Singhal and Sonia Shenoy.
Anuj: Despite flat sales you have done quite well in terms of your bottom-line and quite a bit of that is because of your margins improving. Take us through the quarter and are these numbers sustainable?
A: As far as sustainability is concerned it looks very difficult as lot of dumping has started from China. At the same time, market is shrinking but what we could do is continue our efforts in cost reduction. At the same time, we hit certain fixed price contracts and alloy prices have gone down. So we could get better margin. The third thing is we could change our product mix. So, all these put together has helped us in improving our bottom-line.
Sonia: Can you just throw us some more light on the fact that the market is shrinking because you have seen your own income fall by about four percent. What exactly was the volume growth this quarter, what has the realisations been and going ahead what kind of sustainable volume growth do you think you can see?
A: We are not expecting any volume growth. Even if we are able to maintain same volumes it will be a great job as lot of dumping is happening from China, Korea and Japan. At the same time domestic market is not growing. So, we are nearly struggling to maintain the volumes.
As far as the margins are concerned we have made a good change in our product mix. The prices of alloys have gone down and at the same time we could enter into certain fixed price contracts, so there we did not have to give some price deduction and this has helped us in protecting our margins.
Anuj: Would it be fair to assume that the last quarter was a bit of flash in the pan and going forward you might actually report fall in profit?
A: Anything which I say will be speculative but yes, there is tremendous amount of stress to maintain this performance.
Sonia: Can you tell us what was the absolute volumes that you clocked in this quarter and what was the realisations as well?
A: Realisations is very difficult to say because our every product is tailor made. Even 40-50 tonne we are very small customer (? 2:39 AUDIO GAP). So, it depends on the grade, it depends on the size, it depends on the level of customisation. So, we do not have any standard price.
Anuj: One look at your balance sheet, your finance costs are down 30 percent year on year (YoY) but they double quarter-on-quarter (QoQ). If you could tell us what happened over there?
A: Whatever earnings we have, we are deploying in reducing our working capital cost. So, that is how our interest cost is going down.
Sonia: You were telling us about how demand has slipped quite a bit. Given that steel prices are at multi year lows, do you expect things to worsen further from here on as far as steel prices are concerned and if yes, by how much do you think prices could fall in say, the next three to six months?
A: I really do not know the limit to which it can fall but yes, they are falling. Even in the current month we have given some price reductions.
Anuj: I have a question in terms of this anti-dumping duty that keep talking about and this Chinese dumping? Why should the government be supporting an industry so much. If an industry is not competitive against say, Chinese imports or any other imports what is the point of running that industry?
A: It is a very interesting question. Now if you do not support the industry where there is disproportionate advantage in one country vis-à-vis India. So, this industry will die over a period of time and then where is the question of Make in India. So, this is a tough time till the industry becomes equally efficient and at least, be able to compete with countries where there are certain benefits which are extended to the industry.
Anuj: So, what kind of efficiencies are you talking about because we have been hearing about this anti dumping duty for better part of last decade now?
A: There are two or three things in India vis-à-vis various other countries including China. One is our logistic cost, second is our energy cost, third is the way the situation in which the mining is there in the country today. All these things put together increase the cost of manufacturing for the domestic steel producers.
At the same time if in a country like China they have over production or the local demand is less, for them it is very easy to even dump at a very marginal cost hence the prices are very low and if local industry has to compete against that then they will be under additional stress.
Sonia: Finally, you were telling us that this time you managed to hold down to margins at 19 percent but that won't be sustainable. Given that the operating situation has become very challenging do you think Kalyani Steel could even see single digit margins in the quarters to come or will you manage to maintain double digit margins through FY16?
A: We are working very hard to maintain double digit margins.
Source: moneycontrol