Value Hunter

Every time a crisis strikes, Sajjan Jindal scouts for an opportunity in it. When many of his industry rivals have lost their steel businesses due to high debt, Jindal has emerged as a strong contender for the distressed assets.

In the past, he bought the insolvent Monnet Ispat and is currently waiting for the final outcome of the bid for Bhushan Power and Steel, in which JSW Steel's offer of Rs  19,700 crore was favoured by the Committee of Creditors, against Tata Steel's Rs  17,200 crore offer.

Even during the downturn in the Indian steel industry between 2012 and 2016, JSW Steel was executing expansion projects and buying out companies. The downturn of the steel cycle trapped many of the bigger steel companies and most of them failed to service their loans in this period. But Jindal did a tight rope walk: he cut costs, explored new markets and stuck to the deadlines of loans repayments.

During the steel sector downturn in India post-2012, Jindal enriched the product mix with new steel grades, enhanced the quality benchmarks and closely monitored the margins. Post-demonetisation, when the market went dull again, he increased the exports to offset the domestic decline.

Jindal earlier told BT that his company will try to stay on top in capacity through organic and inorganic growth. With an aggressive growth strategy and efficient project monitoring mechanism, the company will continue building steel plants at nearly 50 per cent cost compared to competitors, he said.

The result is that JSW Steel, which made a loss of Rs  850 crore in 2015/16, posted a record consolidated profit of Rs  6,113 crore in 2017/18. The stock surged 223 per cent in two-and-a-half years to a market value of around to Rs  1 lakh crore as of September 2018, when JSW replaced Lupin from the Nifty 50. But the stock has witnessed a 33 per cent fall since then because of pricing pressure and threat from imports. The company's market value stands at about Rs  67,000 crore early February.

In the last financial year, the revenue of JSW Steel went up to about Rs  65,100 crore, while the earnings before interest, depreciation, tax and amortisation (EBIDTA) rose 22 per cent to Rs  14,794 crore. The profit increased 76 per cent to Rs  6,113 crore. The crude steel production went up by 3 per cent to 16.27 million tonne (MT).

It's Jindal's agility that helped JSW stay strong. When Jindal was building his first steel plant at Vijayanagar in Karnataka in the late 1990s, the industry was in doldrums and he had to go through corporate debt restructuring to retain his business, an experience that he often shares in public platforms. The company has since then always posted operational profits.

JSW Steel's consolidated revenue from operations increased 11 per cent to Rs  20,318 crore in the third quarter of 2018/19, while EBIDTA increased 17 per cent to Rs  4,501 crore, implying a margin of 22.2 per cent. But the profit for the quarter declined 10 per cent to Rs  1,603 crore, after incorporating the recently acquired Italy-based Aferpi. As on December 2018, JSW Steel's consolidated net debt was Rs  46,000 crore.

The scenario for steel doesn't look promising in the short term in India; imports have increased while exports have fallen. Price of steel dropped by an average of over 10 per cent between October and December 2018. According to brokerage Edelweiss Securities, the earnings of metals companies may go down from 2019. JSW, however, forecasts a shortage of steel in 2021. The current crisis is for the short term and Jindal is unfazed.

@nevinjl