 "Sajjan Jindal aims for pole position")
Even as the rest of India worries about conserving cash, Sajjan Jindal has emerged as a contrarian with a seemingly insatiable appetite for acquisitions and investments.
Thus, Jindal's JSW Steel is amongst the seven bidders shortlisted for the e-auction of the Ghorhaburhani-Sagasahi iron ore block in Odisha which has deposits of 99.5 million tonne. Last month, JSW Jaigarh Ports signed a memorandum of understanding with Maharashtra to set up an LNG terminal in the Ratnagiri district at an investment of Rs 6,000 crore.
And JSW Cement has initiated talks with Lafarge to buy its India assets which have a capacity of 11 million tonnes. According to the market grapevine, Jindal was also in talks with the cash-strapped Jaypee group to buy its cement business but lost out to Kumar Mangalam Birla whose UltarTech Cement last week sealed the deal for Rs 16,500 crore.
This rather long shopping list comes on the back of some big-ticket buyouts Jindal has done. Last year, JSW Energy bought two hydro-power projects of Jaiprakash Power Ventures in Himachal Pradesh for Rs 9,700 crore and entered into a binding memorandum of understanding to buy its 500-Mw Bina Thermal Power Plant. A non-binding memorandum of understanding for a 74 per cent stake in Monnet Power is pending decision.
In 2014, JSW Steel had acquired Welspun Maxsteel for Rs 1,000 crore. And in December 2010, Jindal had bought 41.29 per cent of debt-laden steel maker Ispat Industries for Rs 2,157 crore.
This display of deep coffers has made Jindal much sought after by chief ministers keen to attract investments into their states. Onlookers were surprised when West Bengal Chief Minister Mamata Banerjee showed up at Salboni in West Medinipur for the ceremony to lay the foundation stone for JSW Cement's Rs 800-crore cement plant. A bigger surprise came when she waited patiently for Jindal to turn up as his flight had got delayed. This, mind you, is a truncated version of the 10-million-tonne steel plant and 1,600-Mw power unit with an investment of Rs 35,000 crore Jindal had conceived in 2007.
In steel, he has already attained that position. State-owned Steel Authority of India is the first at 19.5 million tonnes, while JSW Steel is the second largest in India with a capacity of 14.3 million tonne, followed by Tata Steel's India facilities (13 million tonnes).
Soon, the blast furnace for an additional four million tonnes at JSW's unit at Vijaynagar is likely to be commissioned, which will bring it closer to SAIL.
A long way off
However, it will take quite an effort to be amongst the top three players in the country in the power and cement businesses.
The Lafarge acquisition, if it happens, will leapfrog JSW's capacity from the current six million tonnes per annum to 17 million tonnes in one stroke. The medium-term plan is to take it to 20 million tonnes.
"We have a vision of becoming one of India's largest players in cement and we are working towards it by increasing our capacity to 20 million tonnes by 2020," a company spokesperson explains.
While inorganic options are being evaluated, JSW Cement is setting up a new cement plant in West Bengal which will have a capacity of 2.4 million tonnes and increasing cement production capacity by 600,000 tonnes at Vijaynagar to three million tonnes in 2017.
JSW Energy, on the other hand, has a plan of generating capacity in excess of 10,000 Mw by 2020. At present, the generation capacity is 3,140 Mw of thermal energy and 1,391 Mw of hydro energy.
"We are evaluating various opportunities for growth of our energy business by both organic and inorganic means," the spokesperson adds.
Even while most companies are shying away from investments, Jindal has made it clear that funding acquisitions would not be a problem. A recent Edelweiss report on JSW Energy highlighted that the company had a comfortable leverage (debt was 1.8 times equity) and strong cash flows which have enabled it to look for inorganic growth opportunities.
One of the funding options for JSW Cement, going forward, could be an initial public offering. "Like most infrastructure businesses, cement is also capital intensive. Once we reach critical mass in terms of revenue and volume, we will think of an IPO. This we can expect somewhere around 2019," the spokesperson adds.
However, the goals look ambitious given that the top players in cement are way ahead of Jindal. For instance, Holcim, through its control of Ambuja Cement and ACC, has 60 million tonnes of capacity while UltraTech Cement has 64.7 million tonnes (the recent acquisition of Jaypee group's 18.4 million tonne capacity will make it the largest player by a wide margin.)
Global headwinds
Most important, Jindal's flagship steel business is under pressure thanks to the global commodity meltdown made worse by dumping. Recently, ICRA downgraded JSW Steel by a notch and changed the outlook to negative. The revisions in the long-term rating and outlook came on the back of a sharp decline in profitability and cash accruals of the company caused by a significant fall in steel prices in the current year in both domestic and export markets. Analysts, however, are not expecting an outflow from the steel business into diversifications.
Even though Jindal is a small player in cement and power, competitors find him a serious challenger. After all, he managed to surprise his rivals in steel.
In 2009, JSW Steel grew bigger than the century-old Tata Steel when it increased capacity to 7.8 million tonnes; Tata Steel was at 6.8 million tonnes then. Then in 2010, JSW acquired Ispat Industries. The next goal has been set, to take the installed capacity to 40 million tonnes over the next decade through expansion of existing units.
Clearly, Jindal has come a long way from the late 1990s when Jindal Vijaynagar Steel was under corporate debt restructuring as were Essar Steel, Lloyds Steel Industries and Ispat Industries. (Jindal Vijaynagar was merged with Jindal Iron and Steel Company and renamed JSW.)
A decade later, the picture is somewhat like this: Essar Steel has appointed investment bankers to find a strategic partner, Lloyds Steel has sold a controlling stake to Uttam Galva Steels and Ispat Industries has been acquired by JSW Steel. No credit for picking the company that stands out from the rest.
