Indian steel makers cut capital expenditure on slow growth and to conserve cash

After a lacklustre performance in the second quarter, several top domestic steelmakers are cutting down on capital expenditure and conserving cash, for what can be described as a long winter before demand revives. Tata Steel, JSW Steel and Jindal Steel and Power (JSPL) have decided to slash their capital expenditure for the year, says a Mint report.

Tata Steel, the country’s largest private steel maker, reported a consolidated net profit of Rs3302 crore for the September quarter, its profit rising solely because of a one-time favourable tax impact of Rs.4,233 crore.

JSW Steel, the second largest, also benefited from an exceptional deferred tax provision writeback of Rs.1,976 crore in the quarter. The profit before tax, for its part, was Rs.688 crore for the quarter, falling 77.2% year-on-year. Tata, Steel, on the other hand, reported a pre-tax loss. JSPL posted a consolidated net loss of Rs.399.31 crore for the quarter, against a consolidated net profit of Rs.279.17 crore in the year-ago period.

The profitability in operations has nosedived as steel prices fell. For Tata Steel, Ebitda/tonne of steel fell to Rs.9,238 from Rs.16,368 in the quarter, while on a consolidated basis, it crashed to Rs.6,156 crore from Rs.12,713.

For JSPL, steel sales were down 7% quarter-on-quarter while operating profit per tonne fell by Rs.1,800 to Rs.9,437 per tonne. For JSW, the corresponding figure was Rs.7,768, down from Rs.12,118 per tonne last quarter.

Over the last four quarters, operating profit margins of the domestic steel industry have been on a slippery ground, declining steadily to 18.2% in Q1 FY20 from 22.6% in Q1 FY19, with production falling to match this. Sluggish domestic demand from end-user segments, including automobile, consumer durable, capital goods, construction and real estate sectors, has led to a slowdown in consumption growth.

A Crisil research report from September found that smaller steel mills have undertaken maintenance shutdowns ranging from a week to a few weeks through the second quarter. Companies have uniformly slashed their capital expenditure plans for the fiscal. JSW cut the year’s outlay to Rs.11,000 crore from Rs.15,708 crore, and trimmed its sales guidance to 16mt for the year from 16.95 million tonnes (mt).  Tata Steel’s management has also said it would recalibrate its capital expenditure plan for FY20, which had been Rs.8300 crore.

Shekhar Ghosh is consulting editor, He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at

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