Leading integrated steel manufacturerJSW Steel was included in the Nifty50 index on Friday after its stellar performance in 2018. The company replaced pharma company Lupin.
The company has successfully heading towards Rs 1,00,000 crore market capitalisation.
Sajjan Jindal, chairman and managing director of the company, said that the inclusion of JSW steel in the Nifty index was the testimony of the firm’s hardwork.
Watch full interview: Sajjan Jindal says higher import duties on steel will not impact JSW Steel
On steel business, Jindal said the domestic steel industry is on a firm footing and the growth stands at 1.2x GDP. “The current numbers are proof of that as GDP is at 7 percent and steel demand is roughly at 8.5 percent,” he said.
Also Read: JSW Steel included in Nifty50: Sajjan Jindal says inclusion is a testimony of firm's hard work
What a journey it has been, entry into the Nifty, 2018 itself, the Nifty is up only around 4-5 percent, the metal index is down but JSW Steel is creating wealth for investors, it is up more than 45 percent and approaching Rs 100,000 crore mark, your comment on that?
It is very exciting, you feel that your whole process, your journey is vindicated when you have achieved the first milestone of any large company of reaching Rs 100,000 crore marketcap. So it makes you feel good. You feel satisfied. However, this is the first step.
And the journey has been such as well, the steel demand, the way it has grown in the last decade or so, ups and downs and JSW Steel has been up there and been battling all the challenges as well. So let us talk about demand, we are coming to an end of monsoon season and over the past decade or so, some believe that maybe the first half of the year has been one of the best we have seen in close to a decade in terms of steel demand. Your comment on that?
The steel industry is cyclical in its nature. So you can never predict a secular growth or secular oneway street, it is always ups and downs and you have to have a nerves of steel to be a steel man or be in the business of steel.
Therefore, as steel producers, we don’t look at quarterly performances or we are always prepared for the downfall but what we have done over the years in JSW Steel is that we have made a very strong balance sheet, we have been very careful and very conservative in our approach, in our growth while staying aggressive on the growth but we have stayed conservative on our capital spend and we have built this company brick by brick with a lot of care and with a lot of precautions.
The result that we are seeing today is of the hard work and the labour that the entire JSW team has put in place over the years to make it where it is.
Even as you said the steel industry is cyclical in nature, is that a possibility that steel is a lead indicator in comparison to our gross domestic product (GDP), do you believe that the steel industry cannot grow faster than the Indian GDP?
Normally, what I have seen is that over the last 20 years that if the GDP is growing at over 7 percent and the steel industry tends to grow at 1.2 times the GDP. When GDP touched 9 percent, the steel industry grew 1.5 times that.
If the GDP grows at 5 percent then the steel industry grows at 1-2 percent. So there are no standard norms but this is the norm, which we have seen and we have tracked over the last 20 years and we believe it makes sense.
For example, now the GDP is growing at 7-7.5 percent and steel is growing at 8-8.5 percent and the last two-three years ago when GDP was at 5 percent, we grew at 1-2 percent. So there is a correlation there we see.
Just going by what you are saying, there could be at least a bit of steady phase for the steel industry for the coming year?
Within JSW Steel, we believe that we are in for a good run. The economy is doing well and we believe that the Indian economy will continue to do well because of the huge emphasis on the infrastructure development on housing on various initiatives that this government has taken. So we believe that the steel demand will continue to be very strong.
But in the last couple of months or at least in 2018 as well, the other focal point has been the dollar strength and the rupee weakness, how is that playing out, do you believe the rupee weakening gives some protection for the domestic producers, your take on that?
I am not a great admirer of rupee weakening. I believe that if the rupee weakens – though momentarily we may all feel that it gives us more protection – our export fetches us more rupees but I don’t like it.
I feel that rupee weakening is weakening of our country’s economy. So I am a big fan of a stronger rupee. Maybe temporarily we will all face the music or face difficulties but eventually, the country will strengthen and so I am always – this time the rupee has partly weakened also because dollar has strengthened globally against all the currencies – believe that rupee has still gotten weakened and I don’t like it.
Just to take that point forward in the last five years, the rupee has been a relative outperformer, just in this year because we are seeing the Fed hike rates and dollar strength – that is the reason why we are at around that 72 per dollar mark but let us take that point forward, there is talk that we are going to see added duties coming in for the steel industry, maybe an increase of around 2.5 percent to around 5 percent approximately, your take on that, does that protect the industry, would you push that agenda forward?
Not really. If it happens, it is okay but I don’t think that is going to matter because today we are sitting quite pretty, global prices are at reasonable level and there is no need for any protection for the Indian steel industry.
If you see the domestic steel prices in any block of the world, for example, if you see in the US, if I take HR coil as the benchmark then prices of HR coil in the US is $900, in Europe it is equivalent to about $670, which is 560 euros and in China and Japan-Korea is also about $650 home market prices and in India is also around $650.
So in dollar terms, more or less, except the US where Trump has put in this 25 percent duties on steel, every other market is more or less at $650-700 range. So India is also at that same price range. Therefore, I don’t see the need to increase the duties anymore.
Also I wanted to take that point forward about Japan as well as South Korea, that is where bulk of our imports are coming in, nearly around 60 percent of our imports at least in the last couple of months are coming in from these Free Trade Agreements (FTA) countries, could there be a probable proposal to tinker with the FTA, maybe get steel out of the FTA, could that be a possibility?
Today, it looks okay because as I said that prices are at good level and we are able to sustain our businesses and Japan-Korea at zero percent duty is exporting into India, we are not complaining much but when the markets go back, both these countries are nearly 50 percent surplus.
In a sense, they consume only 50 percent in their home market and 50 percent they export.
Signing such kind of agreement with these countries is very damaging to India. So I am sure that the government is quite agile to this whole concept and if they see too much steel coming in from Japan and Korea into India then they would be definitely, either they would be taken out of the FTA or there will be anti-dumping on those countries.
The other big challenge over the last year or so has been the tariffs that the US has imposed. Maybe it is a war between the United States and China, but the global steel environment could go into a bit of a tizzy. What is your take on that, how big a challenge is that that trade war is likely to play out?
It is certainly upsetting the world trade body or the whole concept of the global village which we were saying that any country can export and any country can import and it is good for the commerce, good for various economies.
However, what Trump has done, Trump is somebody who does not like to keep things in the normal situation. He likes to challenge everything and he likes to abrupt things. So, every morning he wakes up and he likes to abrupt things. So that is his style and we have to accept it.
I think the steel lobby in the US is very effective and very strong and they have convinced President Trump to put in this duty. In fact, the US has always been $100, 10-15 percent higher priced than the world price because they have antidumping duties against every country in the world.
However, now with this 25 percent duty, they are giving even more protection to the American steel industry. However, that is okay, I do not complain much about it because I feel that it is US’ policy and it is their industry, so it is okay.
JSW Steel’s capacity was less than 2 million tonne in 2002. Today it is closer towards 20 million tonne and by 2020 will be on the verge of maybe going to around 24 million tonne or thereabouts. Where is it headed, if you could tell us, the targeted capacity in India and what about the globe, there have been various acquisitions that you have made even in the US, there are some expansion in Europe as well?
We have taken close to 20 years to come to 18 million tonne capacity which is what it is today. Now we have got a very strong foundation, we have a very strong base, and India is a great place to be in because it is probably the only country in the world which has got an expanding demand in steel or in any product actually, in any commodity or anything. So we are very fortunate that we are part of this economy at this time of its lifecycle.
JSW has probably one of the strongest balance sheets in the steel industry globally and, therefore, we are really thinking of taking this to the next level. We have already announced plans to take our capacities to 25 million tonne without the inorganic growth and with inorganic growth hopefully to 30 million tonne and then our vision plan is that by 2025 we want to be a 40 million tonne steel company out of India and plus 8-10 million tonne we will have overseas. So that kind of company we are looking at by 2025.
So by 2025 30 million tonne domestically.
By 2025, 40 million tonne domestic and 10 million tonne overseas.
JSW Steel is on the prowl for sure, we have seen that in the past year or so, not been very successful in a couple of acquisitions, but at least you have got Monet Ispat out there. Tell us how aggressive is JSW Steel going to be in terms of Bhushan Power and Steel, is that an asset you want?
We have been very realistic in our acquisition strategy. We have never looked at that it is must buy kind of a thing because we do not feel that there is anything which is a must buy.
We do not want to regret at a later date that we overpaid and today we are suffering because we took a decision a few years ago. We had taken a decision in 2008 and acquired a plate mill in the US and we regret it even today because we were very aggressive.
Also at that time, we realised that to buy any asset at the peak of the cycle is the worst time to buy. You have to buy when a cycle is not at its peak but at its worst. That is true for anything, even if you want to buy a stock, you must not buy a stock at the peak of the cycle. So, therefore we made a sort of a mistake at that time, so we are super realistic now and we want to be very careful in buying an asset. We do not want to overpay for an asset.
Q: Is there a possibility of keeping the JSW Steel global dreams separate and the Indian story separate or you want to keep it together under the consolidated name JSW Steel?
JSW Steel will be the main holding body and we could see that we list the overseas company separately and merge them and list them separately. However, this is a long story; this cannot happen overnight.
We have just acquired a couple of assets, one in the US and one in Europe and we have to build on them and we have to create capacities there. Once that happens, then we may list that separately in New York or in London wherever and so that would be still held by JSW Steel.
At what stage would you look at listing that entity, would it be once you hit 5 million tonne, 8 million tonne, or 10 million tonne?
10 million tonne; that is a minimum size, then only we feel it is worthwhile to take it there.
Let us talk about the government of India and the support that they have been giving over the last few years. We had minimum import price (MIP), we had antidumping duty as well, and there has been a good support that has been coming in from the government of India. What more can they do?
Much before what US President Trump did or European Union did for their steel industry or providing protection, the government of India probably took the lead in providing some sort of safety to their home country industries.
MIP and antidumping duty was a result of that because as a steel industry body we went and explained this to the minister and we told him why steel is so important for any country and why India needs to produce more steel and why we need more steel going forward.
If the Indian steel industry dies, then we will be relying on all imports coming in from China or some other country and we will not have any steel industry in the country which is so critical, so important for a growing economy.
The government realised that and they took measures which were very timely and very important. Today, those measures are not required because as I said prices have moved up, there is no protection today, but when we needed protection, the government really came forward and supported us. So I am really very happy and thankful to this government that they were so proactive and they were so quick on this.
What about the government’s ambitious plan of going to 300 million tonne by 2030? What percentage of that could JSW Steel like to have? In the past we have seen a lot of companies go in there, take a lot of debt, add capacity – in the recent past we had only JSW Group, as well as Tata Group, talking about adding capacities, the others are talking about deleveraging – is that 300 million tonne doable as an India story?
300 tonnes has to happen, who does it, how it happens is still a question mark and difficult to know but it will happen because we will continue to consume 8-10 percent growth every year and, therefore, we would need 10 mt more capacity every year which will go on increasing as the base goes up.
We at JSW Steel while we are growing, we are not increasing our debt and are mostly growing through internal accruals or through equity raise if need be but as of now, we do not see that need because we are generating enough cash flow to grow and grow aggressively but with internal accruals. And even if we have to take some debt, it will still be much lower than any competition in the world.
With regards to equity raising, the street has been waiting that whether JSW Steel which has been such an outperformer is going to come and tap the equity market, or is JFE going to come and take a larger part of the listed company JSW Steel? Is QIP in the works?
There is no plan for any equity raise as of today because we have enough cash generation to handle our capital expenditure programme and we have not made any plans to give more equity to JFE.
I think JFE is comfortable at 15 percent and we are also comfortable with them holding that much percent. So there is no real plan for equity raise but if there was a need in the future then we always had an opportunity to raise equity.
The promoter group seems to be very bullish on the stock. On the BSE disclosure, it shows promoters have bought a couple of lakh shares even though the stock is at a life time high. So what is the targeted shareholding because in the last few years the holding has gone from 37 percent to 42 percent?
There is no target but whatever the surpluses promoter group gets in annual account, rather than investing outside the group, we believe the best investment is in your own self, which is not true with most groups.
They do diversify their portfolio. My son does not like to increase our own holding but I believe that there cannot be anybody better than me to invest in a business and so invest in my own business. We have been doing it over last four to five years.
We do not have any target and at 42 percent we are comfortable but if we were 51 percent, we would be better off but I don’t think numbers really matter to me. I don’t even come into the picture because we have our family office which keeps deciding but my instruction to them is to do not invest outside the group.
You put it perfectly – market experts can say what they want but if a promoter goes out there an increases stake, he is the best analyst on his own stock and if he is bullish on his stock then that tells a story in itself. With regards to net debt, your net debt to EBITDA is around 2.5 times, the steel cycle has been doing very well any - targeted number in terms of net debt to EBITDA?
We have announced that 3.75 would be the debt to EBITDA and 1.75 would be the debt to equity. These are the ballpark numbers or the Lakshman Rekha that we have kept that we will never breach these numbers because at the time we had breached five-time debt to EBITDA in 2002-2003 but now we are at 3.75 and gradually we are going to reduce that and come to around three but plan to remain within that ballpark.
Street wants to understand what is going on with regards to Essar Steel. JSW Steel is part of the consortium, what kind of stake you have in that consortium and how keen are you in terms of Essar Steel asset?
Essar Steel is an attractive asset, it needs a lot of improvement. We believe that we can do a great deal of justice with that asset. But I do not know how it is going to play out and since it is sub judice cannot talk much about it.
In the consortium, any kind of number on the stake that you have that is trying to bid for the asset?
We have a 25-26 percent stake in the consortium.
Could you talk about your plans in terms of an electric car?
It is not something which is our core strength but driven out of passion. I am an auto freak and since my young days, I have worked in auto garages while I was training during my engineering. It has been my childhood dream to build a car.
I feel electric car gives me an opportunity to enter into a new field because the car industry will go through a huge change and electric car is a different animal compared to a normal car. So we are going to launch that and plan to make a car with a real good design and that is the whole idea.
Which is the dream car?
There is no dream car as such, with time it keeps shifting. It used to be Mercedes Sports, then Porsche at other time. As of now no real dream car but a car as in car is a dream.