Post the merger of Jindal Stainless (Hisar) Limited with Jindal Stainless Limited, the company has chalked out a capex plan to cash on the strong demand visibility in the domestic market.
“We have a capex plan of Rs 2,000-3,000 crore for the next 2-3 year as we look to double the capacity at our Odisha plant. The entire capex will be funded via internal accruals,” Abhyuday Jindal, managing director of Jindal Stainless told Business Standard.
Currently, Jindal Stainless' Odisha plant has a capacity of 1.1 million tonne, while its Hisar plant is a 0.8 million tonne specialised product division.
“For the last few years, we focused on improving our supply chain. It was becoming difficult to play on cost in the last few years due to cheap imports hitting the market, so we had to focus on logistics, last mile delivery and other supply chain parts. But now it is the right time to look at capacity expansion since demand is up,” said Jindal.
Meanwhile, cheap imports are hurting and continue to be the biggest threat to the stainless steel industry, he added.
For FY21, the company sees a fall in its revenue by about 10 per cent in terms of volumes as the first few months of the fiscal brought business to almost a standstill due to pandemic.
However, in FY22, the management expects earnings before interest, taxes, depreciation and ammortisation (EBITDA) to move up to Rs 14,000-16,000 per tonne from Rs 12,000-13,000 per tonne now on the back of increased revenue.
“About 60 per cent of our revenue is assured since we have an MoU (memorandum of understanding) with trade channel partners. This assures the volumes. Apart from that, we are seeing an uptick in demand by about 10-12 percent in every segment of the topline and so realisations should also go up in coming quarters,” said Jindal.
The company’s Odisha plant caters to volume-oriented sectors such as infrastructure, railway and auto, while its Hisar plant is mainly into niche stainless steel products.
“The demand from railways is expected to continue, and due to the thrust on infrastructure by the government, we have had to cut our exports which we may need to do going ahead as well and focus more on the domestic market in FY22,” said Jindal.
Meanwhile, where domestic steel prices have jumped nearly 50-60 per cent in the last few months, stainless steel prices have moved up by only about 18 per cent.
In terms of debt, the merged entity has targeted debt reduction to Rs 3,500 crore by March 31, 2021 from about Rs 4,700 crore as on March 31, 2020.
“Debt reduction was high on cards and we prepaid convertibles that were due in October 2020. By March 15, 2020 we had already made the payments. Due to this, when we entered the pandemic in end March, we were already having a clean balance sheet,” Jindal said.
At one end where the debt reduction strategy is in place, the company’s funding for capex via the internal accrual is spread over 14-18 months.
“Funding for capex does not happen in one go so we have time to spread it out over 14-18 months. For FY23, we have already made some prepayments towards debt servicing and hence the cash generated in the fiscal can be completely utilized for capex. For FY23, the merged entity had debt service of about Rs 600 crore and now only Rs 75 crore is remaining, rest we have already paid back. With this, we will have sufficient cash flow and no debt servicing needed,” said Jindal.
In 2015, Jindal Stainless initiated a demerger to distribute its debt of close to Rs 8,500 crore between four firms and cut interest costs. Besides JSL, there were three other entities. Both JSL and JSHL were separately listed, while Jindal United Steel Ltd (JUSL) and Jindal Coke Ltd (JCL), the other two, remained private companies.
“The other two entities, JUSL and JCL are out of this merger. They function independently. We have merged only the stainless steel businesses,” said Jindal.