New Delhi/Mumbai: Indian steelmaker JSW Steel on Thursday denied allegations of wrongdoing levelled by an anti-graft watchdog, and also said the firm has cut production at its steel plant owing to a court ban on mining in Karnataka.
The report by the watchdog, which has also named several others miners including National Mineral Development Corp., Sesa Goa and Adani Enterprises, has already created a political storm and led to the resignation of the province chief minister.
The alleged mining scam, is the latest in a series of corruption scandals to hit India have dented the country’s image and hurt foreign investor sentiment at a time when the economy is slowing and the government is facing public ire over rising prices.
JSW Steel, in which Japan’s JFE Holdings owns 14.8%, is not looking at legal recourse on the conclusions drawn in a report for now but may do so in the future, Seshagiri Rao, joint managing director and group CFO, told a press conference in New Delhi.
Anti-graft watchdog of Karnataka, known as Lokayukta, had cited certain alleged illegal purchase of iron ore and transactions linking the company and a group firm.
The firm got its woes compounded when the apex court put an interim ban on the mining in iron-ore rich district of Bellary in Karnataka, from where JSW Steel sources most of its ore requirement for its 10 million tonne steel plant.
Shares in the firm, currently valued by the market at $3.6 billion, are down 21% since the Lokayukta report was made public while they are down 41% so far in 2011. The benchmark Sensex is down 13.7% in 2011.
According to I/B/E/S Estimates, the firm is expected to report a revenue of Rs33,000 crore for the fiscal ending March 2012, compared to Rs23,900 crore it had reported for FY11.
It had posted a 58% higher consolidated net profit during the quarter ended 30 June on the back of robust sales and good production.
The antigraft body had said in its recent report that JSW Steel allegedly received excess iron ore to the tune of 1.29 million tonnes, causing an alleged loss of Rs320 crore of revenue to the state.
“JSW Steel is in no way connected to these alleged illegal activities and unlawful extraction of minerals or default in payment of royalty or taxes by the mine owner to the state exchequer,” said the company statement.
The Mumbai-based JSW has already invested over Rs33,500 crore ($7.5 billion) to set up a 10 million tonne per annum capacity steel plant in Karnataka, while it is still waiting to get a mining lease in the state for over 15 years, the firm said in the statement.
It has cut its productions from its Vijayanagar plant in Karnataka by 30-35% due to paucity of iron ore, a key steel making raw material, Rao said.
“Today iron ore is not available, therefore we have cut the production. So we will watch now what happens in the Supreme Court.”
On Wednesday, pig-iron maker Tatar Metaliks said that it would shut its plant in Goa if iron ore supply from Bellary region doesn’t get normalized in 7-10 days and they are exploring to transport ore from the eastern part of the country.
JSW has not revised its guidance of 8.75 million tonnes of steel production for the fiscal year ending March 2012 despite the current cut in production at Karnataka plant, Jayant Acharya, director, commercial and marketing, said without elaborating.
On Monday, Citigroup had downgraded the stock to ‘sell’ owing to concerns on iron ore supply after the ban and cut its price target by more than half to Rs612.
While seeing the opportunity in the adversity, RBS has upgraded the stock to ‘buy´ from ‘sell’ on likely temporary nature of mining ban in Bellary and insignificant impact on its earnings.
“The production cut that they have taken would be a kind of intermediate step till they arrange their new supplies of iron ore,” Ravindra Deshpande, analyst at Elara Capital said, who has placed ‘accumulate’ rating on the stock.
However, the cost of production for the steelmaker will be higher as it will have to source iron ore from distant places thereby putting pressure on profit margins for the fiscal year ending March 2012, said Deshpande.
Out of 38 brokerages tracking the firm, 12 have a ‘strong buy´ on the stock while 5 have a ‘sell’ rating, data with Thomson Reuters StarMine Professional showed.
JSW shares closed 3.5% down at Rs685.10 in a Mumbai market that was down 1.38%.