In the big league

JSW Steel CMD Sajjan Jindal has built the country's largest steel company, overcoming several problems in the past 25 years

It was the year 1993. Sajjan Jindal was meeting then ICICI Chairman Narayanan Vaghul with a detailed project report for a proposed two-million-tonne steel plant at an investment of Rs 40 billion. At that time, Jindal owned a cold rolling unit with revenues of a relatively modest Rs 2.5 billion. Tata Steel’s plant capacity then was around two million tonnes. When Vaghul expressed some apprehension at the sheer scale of the project, Jindal replied that if the Indian steel market was two million tonnes, then Jindal Iron and Steel Company (JISCO, now JSW) would be selling all of it.
 

It was the year 1993. Sajjan Jindal was meeting then ICICI Chairman Narayanan Vaghul with a detailed project report for a proposed two-million-tonne steel plant at an investment of Rs 40 billion. At that time, Jindal owned a cold rolling unit with revenues of a relatively modest Rs 2.5 billion. Tata Steel’s plant capacity then was around two million tonnes. When Vaghul expressed some apprehension at the sheer scale of the project, Jindal replied that if the Indian steel market was two million tonnes, then Jindal Iron and Steel Company (JISCO, now JSW) would be selling all of it.
 

JSW Steel is now the country’s largest steelmaker, with a capacity of 18 million tonnes and revenues of Rs 569 billion (in 2016-17); the other verticals of the group — cement, power and infrastructure — would add another Rs 325 billion to the group’s overall revenues.
 

Steel came naturally to Sajjan, since his father O P Jindal had a mini steel plant. He was just 25 when he started out on his own in Mumbai with a cold rolling unit. It had revenues of Rs 90 million and losses of Rs 30 million. But Jindal managed to turn it around in a year and a half; the product-mix was changed, as was the marketing, sourcing and pretty much everything else. By the time Jindal met Vaghul and was raring to set up an integrated steel plant, the cold rolling unit had a turnover of Rs 2.5 billion and profit after tax of Rs 150 million.

 
Banks did finance the project and everything else too fell into place. The P V Narasimha Rao government auctioned the Vijaynagar Steel Plant, which was a non-starter, to Jindal and Mukand. The plant had about 6,000 acres of land. Jindal’s share was around 3,700 acres. Jindal’s Vijaynagar plant, then under Jindal Vijaynagar Steel (or JVSL, merged with JISCO in 2005 to form JSW), is now India’s largest single-location plant at 12 million tonnes, and gearing up to produce 16 million tonnes. The area has expanded to 10,000 acres.
 
The plant had no captive raw material resources; the iron ore issue was overcome through adaptation of beneficiation of rejected iron ore fines, while non-availability of coking coal was tackled by the introduction of Corex technology, then a new process. The twin initiatives were revolutionary for steelmaking in India.

 
But there were hiccups along the way. The first was teething problems with the technology, which took about eight months to sort out. The second was the Asian currency crisis in 1997-98.
 
After liberalisation, a slew of private sector companies invested vast amounts in the steel sector. All this capacity came on stream at the same time, coinciding with global issues like the currency crisis, the aftermath of the disintegration of Soviet Union, the nuclear test in India, which combined to create some stress in the sector. For Jindal, the interest cost during construction ballooned, as debt had piled up.

 
It was the early 2000s, and the Bharatiya Janata Party's Jaswant Singh was the finance minister. That was the time when the government announced corporate debt restructuring (CDR) plans for a handful of steel companies like JVSL, Essar Steel, Ispat and Mukand; Jindal was the first to sign on for CDR.
 
The restructuring was carried out in 2002, but the company came out of it in 2004. The promoters’ equity was written down to 40 per cent, and lenders converted debt into equity to the extent of 40 per cent. But there has been no looking back since. At the time of the restructuring, the company had a capacity of 1.6 million tonnes; today it is 18 million tonnes.

 
The CDR was a game-changer for JSW. Fiscal discipline was brought in: If the thumb rule for steel capacity addition in India is $1 billion for one million tonnes, JSW achieved it at half the cost.
 
But Sajjan Jindal is not just about steel anymore, even though that is still the bread and butter. Power, cement, infrastructure (and now paints) are the group’s other verticals. Right now, these other businesses account for around 36 per cent of total revenues. But in the near-term, the potential exists to increase this to 50 per cent.
 
Acquisitions have been part of JSW’s strategy to gain scale in a relatively short span of time, and the probable reason why JSW has bid aggressively for stressed assets across verticals. So far, it has emerged as the sole bidder for Monnet Ispat & Energy, which is expected to be finalised soon. It is also close to buying the Italian plant Aferpi for Rs 6 billion. But before all that, in 2010, Jindal had bought a 41.29 per cent equity stake in debt-laden Ispat Industries for Rs 21.57 billion. The company is now in the process of doubling capacity.

 
Clearly, Jindal’s pace of growth hardly has a match in the industry.