In an interview with CNBC-TV18, Visambhar Saran CMD of Visa Steel, spoke about the impact of increasing iron ore prices and the road ahead for the company.
Here is a verbatim transcript of the interview:
Q - How much of an increase do you expect in your pig iron prices because pig iron prices have surged up quite a bit in the last two months. Where do they stand and with the increase in prices and in the excise duty how much do you think conclusively would be the effect on pig iron prices?
A - As far as the pig iron prices are concerned, they have ramped up from below INR 18,000 in the beginning of the year and now they are hovering at over INR 20,000. The sentiment is positive because as you know coking coal prices are going up, iron ore prices are going up. Therefore the entire input costs for the production is going up and therefore the prices are going up. Going forward the market would determine where it will stabilize.
As far as the excise duty is concerned, the 2% increase is an added extra to the price and generally when we talk of the price, we talk of net to the steel company and whatever component of excise duty that is charged in addition.
Q - Can you detail about your debt position, what does it stand at now? How do you see it by the end of FY11 and therefore what will be the interest costs?
A - Today we have most of the loans at term loans at 11%. Some are even a little over but you can take the average at about 10.75% or 11%. So far we have a CAPEX of about INR 1400 crore against which the debt equity is 65-35.
Q - So where do you hope to maintain your margins?
A - For the current financial year we are looking at an operating margin of about 18% to 19%. Towards the last quarter of the current calendar year, which is Q3 of the financial year we should be commissioning our SMS and rolling mill. At that time our top line from INR 1100 crore should double to at least INR 2,200 on the basis of the current market conditions. At that time the operating profit will go up form 18% to 19% to at least 25%.
Q - Your first full year of production would be FY12 in that case?
A - The first full year of steel production would be financial year March 2012.
Q - What about your power plant, when does that come on stream do and what kind of output are you expecting?
A - We have a 75 MW of capacity, and 50 MW is already commissioned. The balance 25 MW is in the process of commissioning. That would be commissioned about the same time when we would be commissioning SMS and rolling mill, which is in the last quarter of the current year.
Q - What kind of margins are you expecting to end the year with for FY10 and what would be your margins for FY11?
A - For FY 2011, we would expect an operating margin of not less than 25%. A lot will depend upon how the imported coking coal prices pan out, the iron ore prices pan out and how much of a steel price hike the market can absorb.
Q - What do you expect to end the current year with?
A – At least 18% to 19% of operating margins.
(Sourced from CNBC TV 18)
