“Globally, coking coal prices are coming down from $140-142/tonne to about $120/tonne," Rao said. “Production has already started from our Odisha iron ore mines; we produced 1.2 million tonnes (mt) in July and have started despatching to Dolvi, Salem and Vijayanagar, so our captive iron ore use will go up this quarter. Overall, the cost structure will benefit."

In the June quarter, JSW Steel reported net loss of ₹582 crore. Year-on-year, revenue fell 41% from ₹19,407 crore to ₹11,454 crore, as covid-19 and the national lockdown led to a crash in domestic steel demand. JSW Steel’s Q1 production fell to 2.8 million tonnes from 3.75 million tonnes a year ago. The company added an additional ₹1,000 crore to its overall net debt, totalling ₹54,527 crore, or 5.74 times its operating income, versus 4.5 times at the end of March. The announcement was followed by a slew of stock downgrades by broking firms, all worried about net debt levels.

“I understand the concern," Rao said, trying to allay investor sentiment. “Even we are not comfortable with this high leverage. But the way I look at it is that this quarter, the Ebitda (earnings before interest, tax, depreciation, amortisation) was ₹1,341/tonne, compared to ₹3,726/tonne in Q1FY20. When you calculate these ratios (net debt to Ebitda), you take the trailing Ebitda of the last four quarters. When our Q2 Ebitda comes into this calculation, the ratios will improve. Our debt has gone up in absolute numbers because of the upfront payment of ₹1,250 crore for the mines in Odisha, which can be set off against royalty payments in the future to the state. About ₹16,000 crore of debt has come from expanding capacity by 5mt at the Dolvi (Maharashtra) plant. Once this plant is commissioned later this year, the incremental Ebitda will be much more than the incremental debt. And, if you look at our core debt— which is debt related to existing 18mt of capacity— our debt ratios look much better," he said.

“Debt serviceability won’t be a problem," Rao continued, “Q2 onwards, we are quite normal in operations, and it is a matter of one or two quarters before the expansion plans are complete."

However, the planned acquisition of bankrupt Bhushan Power and Steel (BPSL) for ₹19,700 crore could raise debt higher. BPSL is currently facing litigation from its erstwhile promoters, operational creditors and the Enforcement Directorate, together delaying the acquisition by nearly a year. The litigation has given JSW Steel ample time to plan for BPSL’s 3.5mt of additional capacity without burdening its own books, although the company won’t say yet what the final holding structure will look like.

“With BPSL and the (related) debt, we will explain the structure once the BPSL plan is approved and we will work in a manner that will not pressurize our overall ratios. I cannot comment on whether we will bring in a partner at this point," Rao said. “I see BPSL in its final lap and the cases will be disposed off soon. We are ready to implement the plan."