Jindal Steel opens capex window amid continued deleveraging plans

To double capacity via internal accruals with eye on debt/EBITDA ratio

Having reduced its debt considerably over the last few quarters, Naveen Jindal-led Jindal Steel & Power (JSPL) plans to deploy its cash generated for doubling of capex—an option it had shut itself to on account of strong deleveraging focus.

“With company’s consolidated net debt having come down to a comfortable position at Rs 19,700 crore after the recent pre-payment, we are now looking to double capacity mainly via internal accruals,” VR Sharma, managing director at JSPL told Business Standard today.
 

The Delhi-based primary steel producer today reported highest consolidated EBITDA (earnings before, interest, taxes, depreciation and ammortisation) of Rs 5,287 crore in the March quarter of FY21. Also for FY21, the company reported highest-ever consolidated EBITDA of Rs 14,444 crore and net profit at Rs 5,527 crore.
 

“Our deleveraging strategy will continue and, in fact, another pre-payment is being planned for October. Our aim is to bring the debt level below Rs 15,000 crore for FY22. For this, we are very much on track,” said Sharma without divulging the quantum of second prepayment tranche.
 

The company earlier this week announced that it has made a prepayment of Rs 2,462 crore to its term lenders, which was over and above the annual committed debt reduction in FY21.
 

Jindal Steel, over the last few quarters, has lowered its debt by over Rs 20,000 crore from a debt level of Rs 45,900 crore as on March 31, 2017.
 

Meanwhile, the company’s plan to double capacity to 12 million tonne via the brownfield route at Angul in Odisha looks cautious.
 

The company plans to tread on this next phase of growth in a measured way by not deviating from the two key guard rails, with keeping Net Debt/EBITDA below 1.5x during all times and keeping sustainability - of financial and ESG (Environmental Social Governance) matrices - at the forefront, said the company release.
 

In the March quarter, JSPL’s consolidated net sales almost doubled because of strong volumes coupled with attractive realisations.
 

“Realisations jumped nearly 15 percent on year-on-year basis and sales were strong even in the export market during the quarter. Of the total volumes 35 percent was exported and balance catered to domestic market to water pipe industry, roads, shipbuilding and engineering segment,” informed Sharma.
 

Going ahead, Sharma expects demand for water pipe industry and engineering sector to remain strong.
 

The company’s topline stood at Rs 13,197 crore in the period under review, up 73 percent from same period last year. The bottomline of the steel producer stood at Rs 1,968 crore as against a meager Rs 183 crore in the corresponding period last year.
 

Meanwhile, the company, with regard to building shipping containers domestically, informed that it has tied up with a global partner for technology and machinery supplies and is awaiting pandemic situation to normalize a bit for things to move ahead.

“We will have our first production of shipping containers in December. We are currently, waiting for the team to arrive in India and once travel restriction are lifted, we will move ahead on this project,” informed Sharma.
 

India currently has no container manufacturers. The biggest container manufacturer in the world is China.
 

Going ahead, despite the ongoing pandemic and a likely third wave, JSPL remains unperturbed in terms of business outlook even if steel prices are not able to sustain themselves.
 

“Nearly, 80 per cent of our business is in structural steel where there is no competition and hence see no threat to losing market share to anyone. Even if prices fall, input costs will also correct and so to that extent we do not see margins getting impacted,” explained Sharma.
 

Like other steel players, the company is supplying oxygen to hospital during the covid-19 crisis which is expected to bring down steel production by atleast 8-9 percent, said Sharma.