JSW Steel has strong financials, enough headroom to expand: Seshagiri Rao

JSW Steel has very strong financials and substantial cash generation, says Seshgiri Rao

As JSW Steel was included in Nifty50 on Friday, its Joint Managing Director and Group Chief Officer SESHGIRI RAO charted the company’s growth plans. He told Ishita Ayan Dutt that JSW Steel was on course to achieve its capacity target of 30 million tonnes in the domestic market by 2025. Edited excerpts:

Numetal said in court on Thursday that it would match Arcelor’s offer and you are an investor in the operating company. Do these valuations make commercial sense, given that steel is a cyclical industry?

Valuations depend on the synergies that the investor is looking at. If you look at Bhushan Steel, there is almost a $1-billion difference between the two bids. Can we say it’s expensive? I don’t think so, because it depends on what kind of synergies the bidder can bring in. Second is the replacement cost. These, I think, are the two main drivers pushing up the valuations.  

But Essar would require investment going forward. So is Rs 420 billion a reasonable valuation? 

At this stage, I would not like to comment on this. 

What is the outlook on steel?

Steel outlook is buoyant, both from a domestic and a global point. There is a good traction from the overall infrastructure, globally and in India. In addition, demand from the automobile segment is quite strong. We expect demand growth to remain at this level. 

You have set a target of achieving a capacity of 30 million tonnes by 2025. We have visibility till 23 million tonnes through organic expansion. How do you plan to close the gap?

We have 18 million tonnes (capacity). We will have 26.5 million tonnes, including Monnet, by 2021-22. 

Are you planning to ramp up capacity at Vijaynagar to 18 million tonnes?

The current plan is to take the capacity from 12 million tonnes to 13 million tonnes. The possibility of taking it to 18 million tonnes is there. But, we have environmental clearances for 16 million tonnes so we are getting clearances.

Is it possible to take the Vijaynagar capacity to 23 million tonnes and would it make Vijaynagar the largest single-location steel plant?

It can go up to 23 million tonnes, subject to the availability of iron ore. Having a capacity of 18 million tonnes would make it the largest single-location plant.

Do you have the land for it?

Land is not the issue.

You have lined up around Rs 450 billion for organic growth and are actively pursuing inorganic options like Bhushan Power, are you stretching yourself too thin?

Today, our debt-to-Ebitda ratio is at 2.26. We have enough flexibility to consider organic and inorganic growth options. We have been guiding a debt-to-Ebitda ratio of 3.75. Whatever we do, we will not exceed these parameters. We have enough headroom.

Have you zeroed in on any asset from the RBI’s second list?

We will look at any niche downstream asset. 

You have bid very aggressively for Bhushan Power. What kind of investment is JSW prepared to undertake for its inorganic options?

JSW Steel has very strong financials and substantial cash generation. The capital expenditure of Rs 450 billion being spent over four years starting from April 1, 2017, should also start incrementally contributing to the bottomline. If targeted acquisitions as part of inorganic growth strategy of the company are found to be value accretive and synergistically beneficial, the company has enough strength and ability to raise resources to fund such inorganic growth plans.

What is the status of your greenfield plan in Odisha?

We are working on it but greenfield takes some time, so we are focusing on organic growth at existing location. Second, we are looking at inorganic. Third would be greenfield.