JSW Steel wants to have 10 mt global footprint, says Seshagiri Rao

Caution is necessary while bidding (for stressed assets). We will be looking at the cycle average rather than looking at the current situation, said Rao

JSW Steel has lined up brownfield investment in the domestic market and overseas investment that it expects will yield shareholder returns. Seshagiri Rao, joint managing director and group chief financial officer, tells Ishita Ayan Dutt that in two years JSW will have a capacity of 26 million tonnes (mt). Edited excerpts:  

Why is JSW suddenly shifting focus to overseas markets? 

Our capacity increase in the next two years in India, from 18 mt to 25 mt, is a 40 per cent growth in production. If Monnet comes to us, the incremental increase will be 8 mt. So, India focus continues to be there. At the same time, the way we looked at overseas has changed. Earlier, we focused on India for basic steelmaking; for overseas, we looked at upstream and downstream. Now, we are finding overseas very attractive. 
 

Can you elaborate on the US and Europe plan?

In Acero Junction, where we acquired 100 per cent, we will have a fully integrated 3mt capacity for $500 million investment. The thumb rule for investment, here or overseas, is $1 billion for a million tonne. Even if you see the acquisitions under the Insolvency and Bankruptcy Code, the investment is more than $1 billion. So capital investment-wise, the US project is very attractive.

Even if you look at Baytown, in various phases, we have committed $150 million for modernisation of plate and pipe mill. At the same time, we are looking at backward integration with $350 million investment. With that, we will have a 4 mt total capacity in the US. In Europe, we are investing 55 million euro for acquiring. Then, we are spending another 25-30 million euros for starting the operations. And, we are already supplying billets from India for these mills. In the medium term, we want to make it an integrated facility like the US. That's 1.5 mt with a very good investment. 
 

Overall, we will have 5.5 mt in the US and 1.mt in the Europe. They are not capital guzzlers compared to greenfield or brownfield expansions. As long as you are an efficient operator and the initial capital allocation is appropriate, there is very little chance of going wrong. 

Would you look at more acquisitions in the US and Europe?

We want to have a 10 mt global footprint in manufacturing steel. I have given visibility up to 5.5 mt. Balance we continue to evaluate.
 

Have you zeroed in on assets from the RBI's second list?

All the big ones have gone in round one. In round two, a million tonne range facilities are there. We have to really look at it when they come in because the expectations of bankers and all the stakeholders have gone up because steel prices have gone up. Though steel prices are up today, we have to look at the cycle. We will be very cautious. 
 

Do you think valuations in the first round and expectations have reached unrealistic levels?

When the insolvency process started in the second half of 2017, if you look at the bidders' view on future outlook of steel prices, it completely changed in the following six months. Commodities looked up and economies started looking up. That gave some confidence for everyone to be optimistic. But we have seen prices move from $250 a tonne at the lower end to $900-1,000 a tonne at the upper band. That is the kind of volatility in steel. Caution is necessary while bidding. We will be looking at the cycle average rather than looking at the current situation. 

You are looking at acquiring Usha Martin?

We are evaluating.

 

You have given a projection of Rs 450 billion investment in the next two years?

We gave an 18-23 tonne projection by March 31, 2020. At that time, we gave an investment guidance of Rs 267 billion. After that, we announced another Rs 170 billion total. So it has now become Rs 445 billion. Of this, we have spent Rs 47 billion till March 2018. So, Rs 400 billion will be spent over three years. 
 

What is the capacity that you will have by 2021?

We will have 25 mt without Monnet. With Monnet, it would be 26 mt. 
 

JSW has just won an iron ore mine in Jharkhand. How big is the mine?

It's around 40 mt. But it is for merchant mining. We went from our mining vehicle that is South West Mining. If JSW Steel wants to buy, it will be at market price.