JSPL on recovery path amid insolvency turmoil in sector

Jindal aims to shed Rs 45,500-cr consolidated debt by 2020

Naveen Jindal-promoted Jindal Steel and Power Ltd (JSPL) is looking at a recovery after paying back more than Rs 10,000 crore in interest and Rs 6,000 crore in principal to its lenders since 2014. This is at a time when steel firms, barring three majors, are in a troubled phase.

Since the beginning of 2016, JSPL sold a series of assets and increased its production capacity. “While other companies are with the National Company Law Tribunal for insolvency proceedings, we are looking forward to be out of the joint lenders’ forum (that oversees stressed banking assets),” Jindal said in an interview to Business Standard.

Lenders to Bhushan Steel, Monnet Ispat and Essar Steel have commenced insolvency proceedings against the companies after a Reserve Bank of India directive identified 12 accounts that together accounted for about 25% of the gross non-performing assets (NPAs) of the banking system.

Jindal said the company would now focus on sweating assets without major investment in new projects. Large-scale expansion to increase steel and power generation capacities by three times and 2.5 times, respectively, had seen the company debt increase manifold at a time when the business cycle for steel turned unfavourable and the company saw de-allocation of its captive coal blocks. A retrospective levy of Rs 3,300 crore on coal production was funded through debt. At the same time, the merchant power market fell to Rs 2 a kilowatt per hour levels.

Last week, the company announced the sale of its oxygen plant assets at Raigarh (Chhattisgarh) and Angul (Odisha) steel units for Rs 1,121 crore to SREI Equipment Finance Limited. The deal came along with a lease-back agreement for continued operations of the assets by JSPL for manufacturing of steel at the respective plants.

A large part of the sale proceeds went into paying back debt. The company is aiming to be debt-free by 2020. At present, JSPL’s consolidated debt stands at Rs 45,500 crore, with the largest chunk of Rs 24,000 crore for domestic steel business, Rs 8,500 crore for power business and Rs 12,400 crore for global business.

Jindal said government policy decisions like minimum import price, anti-dumping and safeguard duties helped the industry to recover. Besides, the roll-out of goods and service tax (GST) was beneficial for the industry. “With GST, the tax structure is simplified. There was pain during the initial 15 days, but now GST is helping us,” he said.

JSPL made a turnaround at its Angul steel plant after the commissioning of blast furnace in August. This led to a reduction in cost and full production is expected by the end of December.

JSPL reduced its operational costs and working capital significantly during 2015-16 and 2016-17. Without taking any additional debt in FY17, it commissioned a 4 mt blast furnace. It also undertook a host of operational efficiency measures like converting electric arc furnaces to new electric oxygen furnaces.

In 2016-17, the firm clocked a record revenue of Rs 22,696 crore, backed by its highest-ever steel production at 4.8 mt. The company’s export revenue grew to Rs 3,138 crore, up by 340% over the previous financial year. JSPL recorded earnings before interest, taxes, depreciation and amortisation (Ebitda) margins of 21%, translating to Rs 4,658 crore, during FY17. Its revenues and Ebitda during Q1 of FY18 stood at Rs 6,127 crore and Rs 1,353 crore, respectively. The company narrowed its losses to Rs 421 crore in the three months ended June, against a loss of Rs 1,240 crore in the same period last year.

JSPL operates integrated steel plants of 6 mtpa at Angul, 3.6 mtpa at Raigarh and 2 mtpa at Sohar (Oman). It also has long and flat finished steelmaking capacity of 8 mtpa. The company operates the country’s largest 9 mtpa pelletisation complex at Barbil (Odisha).

The power generation capacities of 5,050 Mw includes the Jindal Power Limited's 3,400 Mw OP Jindal Super Thermal Power Plant at Tamnar (Chhattisgarh) and captive power generation capacities of 1,650 Mw at Chhattisgarh and Odisha. It has 3.11 mtpa iron ore mine in India (Tensa in Odisha) and 6.2 mtpa coal mines in South Australia and Mozambique.