JSW Steel aims to double capacity
JSW Steel Ltd. became India’s largest steelmaker this year as production surged. It wants to get bigger still, much bigger.
The Mumbai-based company plans two plants of 10 million metric tons each in the resource-rich states of Odisha and Jharkhand, part of a drive to more than double in size to 40 million tons by 2030, according to joint managing director Seshagiri Rao. To fund growth and lower costs, the steelmaker will tap the bond market more frequently, with larger issues of possibly longer tenures, he said in interview, building on its recent successful overseas debut.
These are boom times for steelmakers in Asia’s third-largest economy as firms including JSW wager that Prime Minister Narendra Modi’s plan to build cities, an industrial corridor and a railway-freight network will bolster demand. Nationwide steel output is forecast to more than double over the next decade and a half, aided by the country’s growing economy and increasing urbanization, according to the Indian Steel Association.
“If we want to become a 40-million-ton company, we have to do either greenfield or brownfield expansions or acquisitions,” Rao said at his office in Mumbai’s Bandra-Kurla Complex. “Our balance sheet is strong. We can make investments.”
Sajjan Jindal-owned JSW Steel would be looking to invest Rs40,000 crore ($6.2 billion) in each plant, and is in talks to acquire land and plans to participate in auctions to secure raw materials, Rao said. The company has already won a coking coal block and iron ore mine in Jharkhand, he said.
“History has shown that JSW Steel can keep capex intensity low, so the street will definitely view this positively,” Ritesh Shah, an analyst at Investec Capital Services Ltd., said by phone on Tuesday. While setting up new plants will be dependent on securing mining leases, the company may find it easier and cheaper to expand its existing plant in Maharashtra, he said.
Mills’ shares have soared along with production and demand. On Tuesday, JSW Steel rallied as much as 2.1% to Rs196.50, the highest in a week, and it’s 45% higher over 12 months. That’s outpaced gains from competitors Steel Authority of India Ltd. and Tata Steel Ltd.
While JSW has bid for a stake in Monnet Ispat & Energy Ltd. — a New Delhi-based steel and power producer — Rao said that high debt levels at many of the stressed assets on sale in India are a deterrent. “If these companies are to be auctioned, then banks have to take maybe a very large haircut.”