His deal with Japan’s second-largest steel maker is one more step in his ambition to create a Rs 60,000-cr conglomerate
In an internal meeting some years ago, Sajjan Jindal, 50, once said: “I have started late. Look at the Tatas and Birlas. They are already so big, so I need to grow faster.”
This week’s deal with Japanese major JFE, Japan’s second-largest steel-maker, may just help him do that.
The money raised through JFE — which will pay Rs 5,700 crore to buy 14.99 per cent in flagship JSW Steel — will help Jindal cut debt and strengthen his balance-sheet enough to raise money to fund his expansions.
JSW, currently India’s second-largest steel maker, plans to increase its annual steel-making capacity from 7.8 million tonnes today to 11 million tonnes by next year, and eventually to 32 million tonnes by 2010, adding 10 million tonnes each through greenfield steel plants in West Bengal and Jharkhand.
“The JFE deal will expedite our growth and help us achieve our targets,” says Jindal, who is JSW’s vice-chairman and managing director.
Sajjan, the low-profile older brother of Congress parliamentarian Naveen, is part of the new breed of businessmen who grasped the opportunities of liberalisation to swiftly establish themselves. “In 15 years, his market cap has gone up from $300-400 million to $9 billion today (this includes JSW Steel and JSW Energy). With the expansions lined up, I won’t be surprised if the group has a market cap $17-18 billion in five years,” said a CFO with a group company.
Jindal wants to build a Rs 60,000 crore diversified conglomerate in the next five years, with interests in power, ports, cement and aluminium. He is drawing on his knowledge of executing large steel projects. To deliver the new projects, he has picked CEOs for each business.
Even before the JFE deal, Jindal certainly wasn’t inactive in achieving this ambition. The last few years saw him foraying into power, acquiring coal and iron ore mines in Indonesia, Mozambique, Chile and a pipe mill in the US. JSW Energy generates 1,500 Mw of power, expanding to 3,100 Mw by the end of the year and has plans to add 11,000 Mw by 2014-15. It raised Rs 2,700 crore through an IPO in January. “He is ambitious and aggressive,” says a group executive.
The JFE Deal: A game-changer for JSW?
For years, Indian steel-makers have struggled to supply high-grade automotive steel to auto-makers like Maruti Suzuki, Hyundai India or Toyota, who still import steel for car body panels. With JFE on board, JSW hopes to breeze through auto-makers’ accreditation processes and have a head-start over rival steel firms.
“In high-end steel, it’s a slow process of accreditation. With JFE technology, we will get immediate accreditation because it supplies to most Japanese car-makers like Suzuki, Nissan, Honda and Toyota. It will give their Indian arms immediate comfort to source from us,” says Jindal.
“Japanese auto-makers are the most fastidious customers. Any acceptance by them automatically opens doors to other auto makers in the world,” says a senior executive with Tata Steel.
“JSW will have access to technology on a continuous basis. State-owned SAIL and Tata Steel also looked at a similar model but could not bring the Japanese on board,” says an expert. Tata Steel’s cold-rolling mill has a high component of technical support from Nippon Steel, but there’s no equity partnership. Equity will allow JSW to integrate with JFE. In return, JFE gets a pie of the high-growth steel market in the region.
“It’s a very smart deal, and a win-win for both. With Tata acquiring Corus and Arcelor Mittal trying to move in a big way, a strong Indo-European alliance has emerged. To counter this, it was necessary to have an Indo-Japan partnership. Between London and Tokyo, India is the common factor. This deal may well determine who dominates the Indian market,” said a senior steel industry representative.
Jindal has been quick to learn from his mistakes. In the past, high debt and interest costs landed him in trouble until lenders bailed him out. Today, JSW Steel has Rs 17,700 crore of consolidated debt on its books, which has pushed up its net gearing to 1.71. With this equity infusion, the company expects to bring down net gearing to below 1. “The slowdown in 2001 and debt hangover had Essar Steel, JVSL and Ispat Industries in the doghouse. The Jindals have emerged strongly from that crisis,” says an expert.
A mechanical engineer, Jindal likes to innovate and is admired by peers for his risk-taking ability. His biggest bet was to go for the untested Corex technology for its maiden Rs 4,000-crore steel project in Vijayanagar against the conventional blast furnace route. Jindal bet on Corex because it was cleaner, used low-grade coal and thus offered higher margins. The plant had teething problems but Jindal didn’t give up despite the huge time and cost over-runs.
In the past year, Jindal has been busy sewing up the JFE deal, which often kept him away from indulging in his favourite passion — a game of squash. With the deal in the bag, Jindal can now look forward to playing more often. His investors will hope that he’s able to pull off his big plans this time, and is not stretching himself too thin.
