 "JSW Steel is back to incremental growth strategy")
When billionaire Sajjan Jindal put his plan to build a 10 million tonne (mt) new steel plant at Salboni in West Bengal on hold, he knew he had a back-up to protect his growth ambitions.
JSW Steel is the largest private sector steelmaker in the country, with 14.3 mt capacity. It reached this position on the strength of turning around sick units and by growing incrementally.
“For JSW Steel the incremental growth strategy has worked better than the Big-Bang approach and this is what they are getting back to when plans for new projects are not working out,” said an analyst with an international brokerage who did not want to be named.
The company that started with a single steel plant in 1982 never had captive raw material such as iron ore and coking coal. It always sourced them from domestic and international producers. JSW planned its greenfield plants close to raw material sources expecting allocation of mines. But that attempt has so far not been successful.
Its plan to set up another greenfield plant of 10 mt in Jharkhand has also not taken off in the absence of secured raw material.
However, this has not deterred the company from scale up its ambition to reach 40 mt capacity by 2025 as it is ready with alternatives. To compensate for the greenfield plants, the company now plans to double the capacity of its Vijaynagar plant in Karnataka to 20 mt by 2022 through brownfield expansion.
“Given the hugely constrained domestic iron ore scenario, JSW Steel has resorted to large scale imports. Any relaxation in iron ore availability will be a further positive for the company,” said Ankur Kulshrestha, analyst with HDFC Securities.
“It is also envisaging a slurry pipeline from Jaigarh (Goa) to Vijayanagar to de-risk itself from domestic iron ore concerns,” he said. The 500 km slurry pipeline will come at a cost of Rs 2,000 crore, but it will address the constraint of iron ore for expansion at Vijaynagar.
The company is also discreetly working on another brownfield expansion plan at Dolvi in Maharashtra. It acquired a 3.3 mt plant of Ispat Industries in 2010 for Rs 2,157 crore. It has turned around the loss-making unit and now it is expanding it to 5 mt capacity. This expansion is expected to be completed early next year.
JSW Steel is the largest private sector steelmaker in the country, with 14.3 mt capacity. It reached this position on the strength of turning around sick units and by growing incrementally.
“For JSW Steel the incremental growth strategy has worked better than the Big-Bang approach and this is what they are getting back to when plans for new projects are not working out,” said an analyst with an international brokerage who did not want to be named.
The company that started with a single steel plant in 1982 never had captive raw material such as iron ore and coking coal. It always sourced them from domestic and international producers. JSW planned its greenfield plants close to raw material sources expecting allocation of mines. But that attempt has so far not been successful.
Its plan to set up another greenfield plant of 10 mt in Jharkhand has also not taken off in the absence of secured raw material.
However, this has not deterred the company from scale up its ambition to reach 40 mt capacity by 2025 as it is ready with alternatives. To compensate for the greenfield plants, the company now plans to double the capacity of its Vijaynagar plant in Karnataka to 20 mt by 2022 through brownfield expansion.
“Given the hugely constrained domestic iron ore scenario, JSW Steel has resorted to large scale imports. Any relaxation in iron ore availability will be a further positive for the company,” said Ankur Kulshrestha, analyst with HDFC Securities.
“It is also envisaging a slurry pipeline from Jaigarh (Goa) to Vijayanagar to de-risk itself from domestic iron ore concerns,” he said. The 500 km slurry pipeline will come at a cost of Rs 2,000 crore, but it will address the constraint of iron ore for expansion at Vijaynagar.
The company is also discreetly working on another brownfield expansion plan at Dolvi in Maharashtra. It acquired a 3.3 mt plant of Ispat Industries in 2010 for Rs 2,157 crore. It has turned around the loss-making unit and now it is expanding it to 5 mt capacity. This expansion is expected to be completed early next year.
But beyond this, the proximity of these two plants means it could be developed into a huge complex. And the jetty can help in transportation of raw material. The company has already applied to the environment ministry for clearance to increase the capacity of Dolvi plant to 10 mt from 5 mt.
So if the plan for greenfield expansion in Jharkhand does not work out, the company knows how to compensate to meet its growth ambition.
JSW Steel has another 1 mt capacity plant at Salem in Tamil Nadu, which was acquired as a 0.3 mt capacity from Southern Iron and Steel Company in 2004 when it was a loss-making unit and turned around.
With this, JSW Steel comes close to achieving 36 mt, within striking distance of the 40 mt target by 2025. The addition of another 4 mt capacity for the billionaire promoter will not be tough as he keeps the route for inorganic growth open.