Race for steel supremacy begins with disinvestment plans for three units

About 11 million tonnes of steel capacity will chan­ge hands as the Centre divests stake in three steel plants — Neelachal Ispat Nigam Ltd (NINL), Rashtriya Ispat Nigam Ltd (RINL) and NMDC Iron and Steel Plant (NISP) Nagarnar — setting the stage for a new phase of consolidation. Who gets what will decide whether the pecking order in the industry reshuffles after the shake-out caused by the Insolvency and Bankruptcy Code (IBC).

The government has set the ball rolling for the 1.1 million-tonne NINL divestment with its facilities in Kalinganagar, Odisha, and potential bidders have been shortlisted. For RINL, the corporate entity of the 7.3 million-tonne Visakhapatnam Steel Plant, a legal advisor for strategic disinvestment will be appointed shortly. As for the three million-tonne NISP in Chhattisgarh, the process for strategic sale is expected to be set in motion after its demerger from NMDC.

The country’s top steel-makers — JSW Steel, Tata Steel and ArcelorMittal Nippon Steel India (AM/NS India) — have, more or less, made their preferences clear. The three are on the shortlisted bidders’ list for NINL.

Among the upcoming assets, Tata Steel is keen on participating in the bidding process for RINL, which happens to be the country’s first shore-based plant with a large land bank. It also fits into the company’s plan to increase share in long steel products, typically used in construction and railways.

AM/NS makes flat steel, used in automobiles and domestic appliances. An entry into long steel would complete its product portfolio. But as the company looks to expand its share in the growing Indian market quickly, it may even explore Nagarnar Steel Plant. With an aggressive growth path, JSW Steel, too, may explore participating in the sale process for both assets.

But around 21 million tonnes have already seen a change in ownership under the insolvency law, most of it by the top producers. What is drawing the players to scout for more?

The industry is going through a structural change, explained Jayanta Roy, senior vice-president, ICRA.

China wants to curtail its production in 2021 by about 50 million tonnes, which is expected to support the global demand-supply scenario. That would mean lower exports from the world’s largest producer of steel and an opportunity for Indian companies to tap the markets that it vacates.

The other major factor, Roy pointed out, was that the balance sheets of the top steel companies were much stron­ger and their ability to invest had gone up.

The thrust on infrastructure by major economies sent steel prices soaring since the second half of the last financial year with domestic prices at an all-time high in July and global at a 13-year high. Top producers used the cycle to deleverage. Tata Steel reduced debt by Rs 29,390 crore in FY21 and is aiming to repeat the level of deleveraging in FY22.

Jindal Steel & Power, one of the top six steel producers, saw consolidated net debt reduced by Rs 13,773 crore in FY21. Even public sector steel major Steel Authority of India Ltd (SAIL) reduced net debt by Rs 16,131 crore to Rs 35,350 crore.

Acquisition opportunities in the steel sector have been few and far between. Perhaps, the most-high profile of them was JSW Steel’s acquisition of debt-laden Ispat Industries from the Mittal brothers — Pramod and Vinod — in 2010 for Rs 2,150 crore. But the IBC opened the floodgates of opportunity and some assets saw a high level of interest from bidders that had to be settled in tribunals (see chart).

The league table changed as companies acquired assets. Till 2018, JSW Steel was the largest steel-maker. But the auction of the 5.6 million-tonne Bhushan Steel by Tata Steel put it at the top with a total capacity of 19.6 million tonne. With the acquisition of the 2.5 million-tonne Bhushan Power & Steel earlier this year, along with the one million-tonne Monnet, JSW Steel has now trundled ahead at 21.5 million tonnes (according to the annual report 2020-2021).

As far as relative market share goes, data from JPC and ICRA Research show that the share of the top two players — Tata Steel and JSW Steel — in flat products stood at 51 per cent in FY2021, up from 48 per cent in FY2018.

In the fragmented long products segment, the share of top five producers (which include Tata Steel, JSW Steel, JSPL, SAIL and RINL), has increased from 38 per cent to 53 per cent in the same period.

The industry is changing in fa­vour of the big boys with deep pockets — with challenges on myriad fronts, from raw material to working capital availability. Now, ESG (environmental, social and governance) focus is likely to define the shape of the industry.

“The next big wave of transformation will be driven by ESG. There has to be an accelerated investment by all steel compan­ies to reduce carbon emissions,” pointed out Vivek Kamra, managing director, Alvarez & Marsal.

“India has some of the best-run steel companies globally. Tata, JSW and now AM/NS Ind­ia. The disinvestment is going to lead to a more competitive, globally recognised Indian steel ind­ustry to compete with and parti­cipate in this global shift,” he added.

The auction of steel assets under IBC saw the entry of Ved­anta into the sector and brought closure to ArcelorMittal’s more than a decade-long struggle to set up steel plants in India. Whe­ther disinvestment opportunities will catch the fancy of yet another new player or make the existing bigger is now the big question.