The Narendra Modi government's move to withdraw Rs 500 and Rs 1,000 notes will continue to dent sales of steel companies, according to Seshagiri Rao.
The retail segment will bear the brunt of demonetisation as a majority of transactions are done in cash, the joint managing director of JSW Steel Ltd., says in an interview to BloombergQuint. “If I look at it, there is an impact of close to 10 percent of sales in the month of November. The major problem we are seeing is in the retail segment. There the impact is much steeper,” says Rao without further quantifying how steep the fall in sales could be.
JSW Steel sells to three consumer segments – exports, original equipment makers and retail. Of these, its biggest division, original equipment makers, which contributes half its total sales, has been relatively unaffected so far. But Rao sees pressure building here too as the cash crunch has shown no sign of easing in the first half of December. “There is a push back we are seeing in the OEM customer side also,” he says.
While Rao lauds the objectives of demonetisation, he hopes cash injection will be faster so that the pain eases going forward.
Business in India is mostly a cash economy, so there is disruption and pain. It is essential to reduce this pain of remonetisation as early as possible.Seshagiri Rao, Joint Managing Director, JSW Steel
Rao also expects steel prices to increase as companies would not be able to absorb higher costs. Increase in raw material costs is bothering domestic steelmakers as local prices are at a discount of about 18 percent or Rs 6,000/ton compared to the landed costs of imports.
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