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Davos WEF 2018: Sajjan Jindal’s M&A Targets

Is Sajjan Jindal making too big a bet on the Indian economy? 

Sparks fly as employees cut a steel slab at Jindal Steel and Power plant in Raigarh, Chattisgarh. (Photographer: Udit Kulshrestha/Bloomberg)
Sparks fly as employees cut a steel slab at Jindal Steel and Power plant in Raigarh, Chattisgarh. (Photographer: Udit Kulshrestha/Bloomberg)

JSW Group chief Sajjan Jindal is very bullish on the Indian economy. And that’s prompted him to bid for specific ‘good’ assets.

Besides Monnet Ispat, for which JSW Steel Ltd. is the only bidder, the steelmaker has also bid for Bhushan Steel and Binani Cement, Jindal told BloombergQuint’s Menaka Doshi on the sidelines of the World Economic Forum at Davos, Switzerland.

Here are edited excerpts from the conversation.

PM Modi struck an interesting balance between saying that India is ready to take on the thought leadership of the world, but we are not here for the macho, make me the leader game. That was an interesting take on world affairs.

Given that he was addressing the Global CEO Forum and everybody from the world industry is here, probably he chose the right words. He spoke about global warming, terrorism as threats to the world. He has clearly portrayed India’s leadership, what India wants to do, and talked about thousands of years of history. So, it was a well-balanced approach.

Were you hoping for him to talk more about investing in India, its economic power or growing market size?

I did hope for it. But in retrospect, what he said was quite good. He did mention about coming and investing in India. He mentioned how it is 42 times better than when he took over. So, he was being pragmatic about it. He didn’t want to oversell India, which is not required. I thought it was more of a written speech and it was not extempore.

What are you making of how our economy is poised at the beginning of 2018 from a larger business point of view?

The Prime Minister mentioned that by 2025 we are working toward a $5 trillion economy which is quite possible, and we will get there. $5 trillion makes us the top three-four economies in the world. So, he is trying to point out that we are ready to become a world leader in the size of the economy.

Does it feel like growth is finally coming back?

We are still not touching 9-10 percent. But 7 percent is clearly visible from the way government spending is happening. Except for new projects which are still not happening. Large companies are starting to invest now but the small and medium sector is still not ready. Because a lot of bank restructuring is happening and a lot of clean-up is happening and this is, probably, what is holding back investments.

Is it going to be metal and commodity sector-led recovery this year?

For the metal sector, there will be a lot of consolidation which will take place through the NCLT or otherwise. Large companies like JSW, Tata will take up large projects. Future demand for steel will be met by these larger steel producers. In the past, there were small steel companies which were not very efficient. Steel is a very capital-intensive business. Therefore, larger capacities make more sense. We had smaller capacities in India but now it is becoming more and more a game of big boys. Therefore, these companies are investing big money.

Monnet Ispat, Electrosteel, Binani Cement, JP Associates, GMR Power are apparently acquisition targets on JSW’s list.

Not all of them. Few of them.

Tell me which ones? You nodded your head at GMR Power so that’s struck out. That still leaves Monnet Ispat, Electrosteel.

Not Electrosteel.

So, Bhushan Steel?

Yes, Bhushan Steel.

Those two (Monnet Ispat and Bhushan Steel), you’ve submitted bids for, you’ve submitted a bid for Binani Cement and you want to work with JP Associates to complete their many pending projects. You need to be very bullish on the economy or your own capabilities, otherwise, you will be confronted with the accusation that you are overdoing it.

I am bullish on the economy. I feel that these are very good assets. We are very picky about the quality of assets. For example, we have picked up JP’s Hydro plant a few years ago and it is a world-class asset. So, we are picking and choosing good assets and only focusing on those.

So, you want both the steel companies at once or you are hoping to get at least one?

I don’t know. In Monnet, we are the only bidder. So, we might end up get that one for sure. For Bhushan, we will play our cards. As I said, consolidation has to happen, whether we take it or Tata Steel or someone else. We have got partners who will join hands like JFE. So, it’s not that only JSW will take it.

So you want both?

I want so many more so it doesn’t matter.

How much, do you expect, will be your exposure to both these assets?

I can’t disclose these things. These would be standalone assets and it will be not part of JSW Steel. JSW Steel will be investing in part of the equity.

Will you be the majority shareholder, if given chance?

No, not necessarily.

Why will you be happy to hold less than majority stake in these assets?

The idea is to manage the show and run the business profitably. Once they turn around, we will merge them, and thereby will control the company. Right now, we are not looking to have a majority.

Do you have a sense of how much debt are you willing to take?

Right now, I don’t have those numbers.

Binani Cement, since you have big plans for the cement business?

Binani Cement is a very good asset and we were looking at it for a number of months. Let’s see what happens.

Do you have more on your list for cement?

Not really. We are not present in that market so [Binani Cement] makes sense.

There were comments that JP Associates and you may come together, and help them.

Only the power assets.

Other than that, the JSW Group is not interested in working with JP for them to be able to finish their housing projects, or their many pending apartments?

No, we are not in that business.

Along with you there are many other players bidding. There’s ArcelorMittal, wanting to have a footing in India. There’s also Vedanta which wants to build out a steel portfolio. Do you think there is enough space for big global players to come in?

India is a very attractive market. India is going to be the second largest steel producer in the world. So, anybody and everybody, whoever is in the steel business, will look at India very seriously because India is a very serious market. It has a long way to go to build this country. Steel is the basic material for building the nation for building infrastructure and everything. So, the interest by ArcelorMittal or Vedanta’s interest in the business is not unfounded.

Will this become a very expensive bidding war?

Time will tell.

Can you predict the list of top five players in India five years down the line? Tata Steel is working hard to regain its top spot back from you.

We have grown up looking at Tata Steel. I have great regard and respect for Tata Steel. They ought to be number one and there is no problem. I would be happy to be number two or three. I worked very hard and I continue to work very hard. I am a tough competitor to beat. I like to win.

How do you gain leadership in this market, besides building capacity?

Higher margins and profits per tonne of production are most important. Shareholder value which company provides is critical. Capacity is not the only thing. There is also customer satisfaction and providing what they need.

You have 34-40 percent of revenue from high value-added steel. Is that what will give you technological superiority over any other player in the marketplace?

Eventually, everybody would want to go down to the value-added products chain because that what’s makes the company more profitable customer is more satisfied. So, Tata invested a huge amount of money to buy Corus and we gave some equity and got money into the company to get the same technology. We brought in JFE. So, that was two different thought processes. I think JSW was the winner in the process. Down the road, we are thinking that we will continue in our pursuit to go on adding value and increasing capacity and creating value for our shareholders and customers.

We have seen a price spike take place in iron ore shortage. You warned that thousands of jobs will be lost. How critical is the situation right now?

It needs a lot of initiative from the government. They are taking initiative and the Ministry of Mines has taken initiatives and conducted meetings for it. But they are not finding the path as to how to handle it because the diktat has come from the Supreme Court.

We have a large amount of minerals in the country but we have to gainfully utilise it. If it is lying on the ground and the generations go hungry, then it’s lost. In steel, iron ore will lose value in next 30-40 years. Because there will be enough recycling scrap and we will need much less iron ore than we do today. I believe that iron ore is the one very strong thing which we have, and we must exploit it.

In the medium term, are you seeing a big price effect for iron ore?

This year, iron ore prices are nearly 100 percent up. Since the Odisha ban, it has gone up 100 percent. This is quite ridiculous, and we cannot accept that. There is plenty of iron ore in the system. We must produce more iron ore. That is the government’s job to see. We import a million tonnes every month. JSW Steel is importing. Sometimes it is more expensive, but it is much better quality. I am sure that the government will do something about this situation or else prices will rise.

You said that if the promoters were not able to manage their assets earlier then why to allow them to re-bid. Did you still stand by it?

There has been a lot of promoter pushback. But how do you justify somebody who has run the business down for different reasons [bidding to take back the company]. There could be coal mines getting cancelled, government decision has gone against the promoter but the fact is the company has gone sick and banks take a 50 percent haircut and the promoter comes back. Philosophically, it is very difficult to justify. So, it doesn’t make sense. The government agreed with my view.

Are you not interested in Essar Steel?

No. It is because of geography. The CCI won’t allow us to take everything. Technologically, Essar is not the best plant because it is based on gas which is not the best.

Outlook looking good for steel except for iron ore situation?

Yes. But otherwise, also it is good.

Watch the full interview here.