Jindal's Rs 60,000 crore bet

Say Rs 60,000-crore expansion, and the first names that spring to mind are those of the Brothers Ambani. Now, another member of India Inc. is also thinking big, very big.

Sajjan Jindal, Vice Chairman and Managing Director, JSW Steel, has drawn up an ambitious programme to expand his footprint in his core steel business and also diversify into the power, cement, aluminium and infrastructure sectors.

But why is the steel-focussed group getting into apparently unrelated areas? “Everything revolves around our core steel business,” says Jindal, adding: “Steel gave birth to the power business.” Sitting in his palatial corner office in the all-white Jindal Mansion on Mumbai’s Peddar Road, the 48-year-old Jindal says his steel and power plants produce slag and ash, essential inputs for making cement, as byproducts. “So, it’s natural for us to get into cement.”

Then, he’s moving into aluminium, which, on the face of it, has little relationship with his existing businesses. But Jindal says there are synergies. “Our steel business gives us insights into mining and mineral processing.

Hence, our decision to set up an alumina refinery and a smelter,” says Jindal, who is also foraying into the infrastructure sector (See Future Play). And, there is, of course, the multi-thousand crore, multi-location expansion plan in his core steel business as well.

Pulling ahead

Future play Sajjan Jindal is moving aggressively into a host of new areas. JSW Energy Capacity: 15,000 MW by 2015 Location: Maharashtra, Gujarat, Rajasthan and the east coast of India Investment: Rs 12,000 crore in Phase I Status: Projects under implementation in Phase I: 600 MW in Vijayanagar (Andhra Pradesh), 1,000 MW in Barmer (Rajasthan) and 1,200 MW in Ratnagiri (Maharashtra) JSW Cement Capacity: 5.3 million metric tonne Location: Nandiyal, Vijaynagar and Salem (AP) and Bangalore Investment: Rs 2,100 crore Progress Report: 0.6 MTPA to go on stream by June 2008 and the remaining 4.7 MTPA by September 2009 JSW Aluminium Capacity: 1.4 MTPA alumina refinery and a 250,000 tonne smelter for producing aluminium Location: Andhra Pradesh Investment: Rs 4,000 crore under Phase I for 1.4 MTPA refinery Progress Report: Work on the refinery to start by April 2008 and commercial production by April 2010 JSW Infrastructure Capacity: 8 million tonne cargo handing capacity Location: Jaigad, Maharashtra Investment: Rs 1,000 crore Progress report: To be ready by the middle of 2009

When O.P. Jindal died three years ago, the Rs 25,000-crore empire he had built from scratch had already been divided among his four sons. The steel cycle was coming out of a prolonged slump, and the group, which had been through a rough time, was returning to an even keel. Sajjan Jindal, the second son of the late patriarch, is now charting a new, and audacious, course. He is clearly the most aggressive of the four Jindal brothers, but this doesn’t extend to self aggrandisement. He doesn’t like his businesses being called the “Sajjan Jindal Group”. Instead, he reminds us of the new corporate identity: Jindal South West Holding (JSW) Group. And his goal: “To be among the Top 3 in every business we are present in.”

That won’t be easy. He’ll have to square up against formidable rivals— Anil Ambani (power), Ratan Tata (steel), Kumar Mangalam Birla (cement and aluminium) and Anil Agarwal (aluminium and, now, steel, also). No wonder, he’s thinking scale. Jindal currently has projects worth more than Rs 60,000 crore in his chosen sectors in various stages of implementation. But this also begs the question: where will the money come from? And, does he have the management bandwidth to pull it off?

All the new verticals—energy, cement, aluminium and infrastructure— will tap the IPO market once financial closure is achieved and raise the balance money through a combination of internal accruals and debt.

The game plan

Jindal is moving fast in the power business. JSW Energy plans to build 15,000 MW of capacity by 2015. The power projects at Vijaynagar in Andhra Pradesh, Barmer in Rajasthan, and Rantnagiri in Maharashtra, totalling 2,800 MW, are in advanced stages of implementation. “We have already charted out a roadmap for setting up coal- and hydro-based power plants,” he says. “The demand is massive but India is running awfully short of power,” he adds.

Besides these, the other power projects are expected to come up in Jharkhand and West Bengal where the group has access to coal mines. Power is, thus, Jindal’s single largest bet outside the steel sector, and he plans to spend Rs 10,000-12,000 crore in Phase 1, which will be implemented over the next 3-4 years. JSW Energy is expected to tap the capital market in the first half of 2008 with a $1-billion (Rs 4,000-crore) IPO to part-finance its plans.

JSW Cement is also lining up to tap the primary market. “We’re setting up a 5.3 MTPA slag-based cement plant in Andhra Pradesh and Karnataka,” says Jindal. Slag is a by-product of the steel making process and JSW Steel currently sells the slag it produces. Says R.K. Sodani, Director-in-Charge (Cement), JSW Cements: “We plan to use slag from our steel plants to produce cement at a very low cost.” Using in-house slag will reduce JSW Cement’s capital costs by as much as a third. The JSW Group’s cement business, in which it has invested Rs 75 crore as equity, will reach financial closure in the first quarter of 2008. The project cost of Rs 2,100-crore will be financed by a combination of debt and equity in ratio of 1:5.

Jindal is also betting big on aluminium. “Today, aluminium is a substitute for steel in many highend industries,” says Krishna Deshika, Director-in-Charge, JSW Aluminium. Though Jindal has no experience in this industry, he’s banking on the fact that steel and aluminium require similar mineral processing skills. JSW Aluminium is acquiring land in Andhra Pradesh for the alumina refinery. The group will bring in Rs 1, 200 crore as equity, while the balance investment of Rs 2,800 crore will be borrowed from financial institutions. “We will initially export alumina to West Asia in view of the high demand there,” says Deshika.

Jindal’s infrastructure play completes his diversification programme. Infrastructure and logistics linkages will play a critical role in all his new ventures. So, instead of depending on third parties for infrastructure support, he has prepared a blueprint for a big foray into the sector. “The sustainability of any business depends critically on control over the related infrastructure and logistics chain,” explains B.V.J.K. Sharma, Director-in-charge, JSW Infrastructure & Logistics, the group’s vehicle for the infrastructure sector. The Jaigad Port in Maharashtra, under the JSW Infrastructure umbrella, has already received the clearance from Union Ministry of Environment and Forests to commence civil works. JSW Infrastructure will also set up shipbuilding and repair facilities, rail networks and a port-based SEZ. The company is also evaluating opportunities in mega townships, roads, sewage treatment plants and water supply management.

Tough times don’t last

The low-profile Jindal, a keen squash player who usually avoids limelight, is actually sitting quite pretty at the moment. His flagship, JSW Steel, which had been buffeted by huge losses in the early 2000s because of a fall in global steel prices, has bounced back with a bang. The last five years have been particularly good (see The Numbers Game). In 2006-07, it earned post-tax profits of Rs 1,291 crore. Jindal is brimming with confidence.

“This is going to be India’s century,” he beams. In fact, he believes that the growth rate can rise to 12-13 per cent over the next 10-15 years given the right policy inputs. The only area of concern is “that new capacities are not in sync with the projected demand”. And that’s where he sees opportunity for his group.

Management bandwidth

Jindal is confident that he’ll be able to raise the money and find the right technologies to power his ambitions, but more than these two factors, Jindal’s biggest challenge is likely to be in the HR space. He realises this and has, over the last three years, quietly built a high quality management team to run his new verticals. Sodani, who heads the cement vertical, had worked in senior positions at Gujarat Ambuja Cement and the AV Birla Group; Krishna Deshika came on board from the GMR Group to head the aluminium venture and JSW Infrastructure & Logistics head B.V.J.K. Sharma is from the Adani group and was involved with its port project.

“Building businesses is just one part of the equation; but managing them professionally is really the key to long-term success,” says Jindal, who is a Director on the board of IIM Indore. His management style: complete delegation—he sets strict implementation targets and then monitors them very diligently. “He hires the best professionals and allows them to do their jobs,” says a director who has worked with him for many years.

The core story

Despite its expansion into several new sectors, the JSW Group will retain steel at its core. Jindal is expanding the capacity of his existing steel plant at Vijaynagar from 4 MTPA to 10 MTPA; the expanded capacity will go on stream by 2010. Then, he has ambitious plans, two other plants of 10 million tonnes each in Jharkhand and West Bengal. The first phase of each of these two greenfield plants will have capacities of 3 MTPA and involve a combined investment of Rs 20,000 crore.

Jindal is clearly aiming for the stars. Once complete, his projects will propel his group into the ranks of the top four or five business houses in the country. But the big question is: can he pull it off? “Sajjan Jindal will deliver if the India growth continues for another 3-5 years,” says an expert. For now, the world is watching.