India’s largest steel manufacturer is confident of retaining size leadership even if none of its current acquisition plans succeed.
Expansion of current manufacturing facilities and the plan to build a new plant in Odisha will take JSW Steel Ltd. to 40 million tonnes per annum from the current 18 mtpa over the next five years or so, said Seshagiri Rao, joint managing director and group CFO of the company.
Rao is upbeat about the growth prospects for India’s steel industry after demand rose over 7 percent in the last quarter. “It’s a momentum we are seeing after a period of almost 10 years, after the global financial crisis. So we expect at least for sometime this momentum will continue,” he said in an interview with BloombergQuint.
An additional 5 mtpa capacity at JSW’s factory in Dolvi will be ready by March 2020. The company also intends to add 4 mtpa to the 12 mtpa facility at Vijayanagar facility in 24 to 30 months, said Rao
Another 1 mtpa will be added when the National Company Law Tribunal approves JSW Steel’s resolution plan for Monnet Ispat Ltd., a steel company currently undergoing insolvency resolution. JSW was the sole bidder for the business.
The company is also working on a new 12 mtpa plant in Odisha. “We have done a lot of preliminary work there, getting approvals and all that. So that may take some time, because it's a greenfield project,” Rao added.
In the meantime, if we succeed in any of the IBC cases, I think it [capacity] can accelerate further or go beyond 40 mtpa. This is how we are looking at our growth story.Seshagiri Rao, Joint MD and Group CFO, JSW Steel
So far the Sajjan Jindal-founded company has succeeded in acquiring just one of the three insolvent steel businesses it bid for - Monnet Ispat.
JSW was outbid by Tata Steel for Bhushan Steel Ltd. and Bhushan Steel & Power Ltd. Both debt burdened companies are currently in the final stages of insolvency resolution.
It’s now trying its luck with the 10 mtpa Essar Steel Ltd., also a company undergoing insolvency resolution.
When the five assets were available, we prioritised three assets and we focused on the three. All the five assets came together at the same time, bunched together. We could not spend our time on all the assets, so we focused on three. So after having secured only one, there was an opportunity which again opened for Essar Steel, because both the applicants were declared as ineligible as resolution applicants. So we also saw an opportunity for rebidding.Seshagiri Rao, Joint MD & Group CFO, JSW Steel
Competitors Tata Steel and Steel Authority of India also have aggressive expansion plans lined up.
SAIL expects to expand capacity to 21 mtpa from the current 12 mtpa in two to three years, its Chairman PK Singh said to BloombergQuint earlier this month.
If it succeeds in acquiring the Bhushan Steel (5.6 mtpa) and Bhushan Power & Steel (2.5 mtpa), Tata Steel could overtake JSW before the year is out, with a total 21.1 mtpa capacity. Last year it also announced a further 5 mtpa capacity expansion at its Kalinganagar facility, to be ready in 4 years. That puts Tata Steel’s estimated capacity at 26 mtpa by say, 2022. Just 2 short of JSW’s targeted total capacity in that time period.
India’s total steel production capacity is 128 mtpa, as per government data. In two years it is expected to become the world’s second-largest steel producer, according to a Goldman Sachs report. And by financial year 2030, the total capacity is estimated to hit 300 mtpa, as set out in the government’s National Steel Policy of 2017.
The performance of the steel sector has been ahead of government’s target in the past with nameplate capacity as of FY17 at 125 mtpa versus government target of 110 mtpa by FY20 as per the National Steel Policy, 2005. However, we believe, the current capacity addition target of the government, if achieved, will be largely in the latter half of the next decade. - Goldman Sachs Research Report
Capacity utilisation is also expected to improve, from 76 percent in the last fiscal to 87 percent by FY23, Goldman Sachs estimated.
At a time when Tata Steel is working to save its Europe business via a merger with Thyssenkrupp AG, JSW is looking for acquisition opportunities overseas.
Today the U.S. and Europe are completely different than what it was in the past. They are in the growth momentum. For the last 10 years, they were not doing well. Today the commodities cycle has come back again. It is looking better. Industrial commodities are particularly looking better. And in this current environment, I think even looking at acquisitions globally is not a bad idea.Seshagiri Rao, Joint MD & Group CFO, JSW Steel
Last year, JSW lost to ArcelorMittal in the competition for Italy’s troubled Ilva steel plant with an annual production of over 10 mtpa. Now it is rumoured to be interested in acquiring a much smaller Italian steelmaker, Aferpi.
Watch the full conversation with Seshagiri Rao of JSW Steel here.