 "Sajjan Jindal: Cautiously opportunistic")
It shows in the numbers of his listed group companies. JSW Steel is now the largest steel maker in the domestic market - ahead of both government-owned Steel Authority of India (SAIL) and Tata Steel. In FY14, JSW Steel reported revenues of Rs 51,497.6 crore, ahead of both SAIL (Rs 48,098.3 crore) and Tata Steel's domestic arm (Rs 42,653.9 crore). At the end of March 2008, JSW Steel's revenues were a third of SAIL and two-third's of Tata Steel's domestic arm.
| JSW STEEL: ACQUISITIONS |
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Jindal's power company, JSW Energy, is now the second most valuable private energy producer and the only one to report high double-digit return on equity (RoE), making it the top industry performer on the bourses. The company has consistently improved its finances and reported industry leading RoE of 15.7 per cent in FY14, ahead of industry behemoth NTPC (13.5 per cent). In comparison, its three closest private sector peers -Tata Power, Adani Power and Reliance Power - are barely profitable.
The credit rating trajectory of JSW Steel and its rivals over the years says it all. JSW Steel's long-term ratings moved up from D (default grade) in 2001 to AA now. In the same period, Tata Steel remained under the AA bracket. JSW Energy on the other hand is rated AA, same as Tata Power and ahead of other big rivals such as Adani Power and Reliance Power.
Higher rating means lower cost of funds. Jindal is using his group company's financial heft and balance sheet troubles of his peers to snap up stressed assets at reasonable valuations and race past his long-established rivals. In the last three years, JSW Steel and JSW Energy have bought assets worth Rs 13,000 crore, making Jindal one of the biggest deal makers in the domestic market.
In November last year, his power company acquired two units of Jaypee Hydro Power for Rs 9,700 crore to become the country's largest generator of hydel power with capacity of around 1300 Mw.
Experts attribute Jindal's hunger for growth to the lessons he learned during the near bankruptcy of his flagship in the early 2000s. At that period, the company reported losses for seven consecutive years and was on the verge of bankruptcy when its leverage ratio had shot up to 8.6 during the year-ending March 2003. "The period taught us the importance of financial and operational risk management. We also realised that steel, being a cyclical business, should not have high leverage and this we have been following even today. To turn around our operations, we virtually launched a war on inefficiencies which paid us handsomely in the turbulent years since 2008," says Seshagiri Rao, joint managing director and group chief financial officer. He has been with the company since 1997.
It also taught Jindal valuable skills in turning around loss-making units that he is now using to great effect in both his steel as well as power business. "It does make some financial sense to acquire sick units at low valuations than put money in greenfield projects in a slowing economy," says Mayuresh Joshi, vice-president (institution), Angel Broking. Jindal declined Business Standard's request for an interview, saying he was too busy.
Agencies are impressed
Rating agencies like such a calibrated growth strategy. "It is important to note that most of the company's acquisitions were not too big, saving it from any financial stress in case of operational difficulties," says R Muralidharan, director, Fitch Ratings.
The company also became more conscious about its position in the steel value chain and consolidated its position in the industry through strategic acquisitions to fill gaps in its product portfolio.
At the same time, JSW Steel was wise in putting the bulk of its incremental capex in the domestic market, unlike Tata Steel which burnt its fingers in its mega acquisition of Corus. SAIL, on the other hand, was slow in capex, creating space for JSW Steel to grab a larger pie of the incremental demand growth in India.
Analysts also attribute Jindal's success to his project management skills. "We have seen JSW Steel expand to 14.3 million tonnes currently from under 2 million tonnes in 2002. It has grown both organically and inorganically and has managed most of its acquisitions quite well," says Muralidharan.
Jindal has now set an ambitious target of 40 million tonnes of steel capacity by 2025. "While it is not going to be easy to move towards a goal of 40 million tonnes, we get confidence from its execution skills in the past," adds Muralidharan.
Along with his many success, Jindal has also had his share of failures. In his ambition to attain global scale, he acquired three units in the US from his elder brother, Prithvi Raj Jindal, in a leveraged buyout deal worth around $1 billion in 2007. "The US acquisition was expensive and the company has still not managed to turn it around. Thankfully, its proposal to acquire Italy- based Luchini and Ilva Steel did not work-out," says an analyst with a foreign brokerage.
Jindal also came under criticism for transferring the brand rights of JSW to a company 99.99 per cent owned by his wife Sangita . According to the terms of the deal, the annual recurring payment, linked to the turnover of the company, works out to around Rs 125 crore, a third of its profits in FY14 and is likely to increase in subsequent years. Corporate governance experts termed the move "abusive". They said the brand has evolved over the years and cannot suddenly become the private property of promoters.
There were legal hassles as well. The Central Bureau of Investigation (CBI) had named Jindal among the accused in a case related to illegal iron ore mining in Karnataka in 2012. The Supreme Court had asked CBI to investigate the involvement of JSW and other firms in giving donations, buying land at inflated prices and providing "illegal gratification" to state officials. The company has denied any wrongdoing.
Another chink in Jindal's armour is JSW Steel's lack of captive raw material to feed its blast furnace, unlike its peers such as Tata Steel and SAIL. While the company aims to double Vijaynagar capacity in the coming years, the uninterrupted supply of captive ore translates into lower operating margins and exposes the plant to the vagaries of international prices of iron ore and coal.
Jindal has also put on hold JSW Steel's proposed greenfield steel plant in West Bengal because of slowing demand and uncertainty over raw material linkages.