Due to the continuous fall in the rupee, JSW may see translation losses in the P&L account said, Seshagiri Rao, joint managing director and group CFO in an interview to CNBC-TV18. The firm imports coking coal for its mining operations.
Rao further said that sluggish demand continued to bother the company.
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Below is the verbatim transcript of Seshagiri Rao's interview with CNBC-TV18
Q: Could you outline what impact the rupee depreciation has and with the rupee closing the June quarter at levels of about a 59.5, what could we expect the impact in Q1?
A: There will be translational losses on companies which have foreign currency debt, but as we have been clarifying that JSW Steel economic exposure wise there is no problem. Whether steel sold in India or overseas, it is dollar linked so if rupee depreciates we will be able to get more revenues even in domestic sales so there is a natural hedge that is available. However, at the same time, there will be volatility in the earnings due to very steep depreciation of rupee that will lead to translational losses in the profit and loss account.
Q: First you said that there is this natural hedge since landed steel is also dollar denominated, but given the state of demand in the country will you be able to raise prices even if the landed price went up?
A: It is possible because the pricing in the domestic market is majorly linked to the landed cost of imported steel. If it is so then the pricing will be determined based on the landed cost. So it is possible to do that given that demand is not robust enough. The pricing methodology has been agreed for the last several years which has been followed in the domestic market. So I don't think there will be a problem in working out what is the landed cost if the rupee is at 59.50-60/ USD.
Q: The reason we are asking is we haven't got any announcements from any of you, today is July 1 and you are staring whether on a quarterly basis or on a monthly basis at a deprecation of about close to 10 percent. So should we expect some announcements today?
A: What is important to note is that the iron ore prices internationally are falling. Similarly coking coal prices in dollar terms are falling, at the same time steel prices are also falling. So when the rupee depreciates, when the international prices of steel is falling then we have to see the overall impact - how much we will be able to pass on or should pass on to the consumers. So we are working out with various user industries and the various customers so we will be working out how much would be the increase.
Q: Will you as the finance head of such a large group be preparing for greater depreciation? How is the year ahead looking to you from the kind of exposures and the talk that you are witnessing?
A: I am seeing a lot of commentary as far as the rupee depreciation is concerned, but I personally believe that whatever has happened in the last few weeks I don't think rupee deserves to depreciate so much in just a few weeks time. So if you really analyse even fundamentally, the current account deficit (CAD) per se is not bad for a country like India, which is developing and also 30 percent almost for gross domestic product (GDP) is in the form of investments. So CAD per se is not bad for our country.
Only debate is whatever CAD we had in the last two-three quarters or more than a year ago, is it excess or should we do something on the increasing CAD? Number two is how we are financing this CAD, whether it is financeable or not and whether our external debt is worrying for us. There are the three issues one has to debate, but in my view CAD when it is going a little higher, the adequate steps that have been taken, one is the petroleum products pricing as per market rates in the market. There is a very good development which brings efficiency in utilization of oil. Number two is on the gold side, there are a lot of efforts which are being taken, so these two together in my view will contribute quite significantly for reducing the CAD, going forward.
Also the correction which we had seen in Q4 of last year, it is also an indication that it is trending towards a lower CAD going forward. What is also very relevant to see is this non oil and non gold, it is not worrisome for us as far as the overall deficit is concerned. Similarly, we hear a lot of things about our external debt. In external debt also, we had USD 292 billion of total reserves and everybody talks about what are the future payments in the next 12 months time, which is a large sum then there will be a problem. However, the short-term debt which everybody is talking about this USD 92 billion with reference to USD 500 billion of imports. So if that will become zero, there will be a problem, I don't subscribe to that view at all because when we are importing we are getting six months credit not only as a company JSW Steel, but the entire country.
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