When billionaire Sajjan Jindal put his plan to build a 10 million tonne (mt) greenfield steel plant at Salboni in West Bengal on hold, he knew he had a back up to protect his growth ambitions.
JSW Steel is the largest private sector steel maker in the country with 14.3 mt capacity. It reached this position on the strength of turning around sick units and by growing incrementally.
“For JSW Steel incremental growth strategy has worked better than a big bang approach and this is what they are getting back to when the plans for greenfield projects are not working out,” says an analyst with an international brokerage who didnot want to identified.
The company that started with a single steel plant in 1982 never had captive raw material such as iron ore and coking coal. It always sourced it from domestic and international producers. JSW planned its greenfield plants close to raw material sources expecting allocation of mines. But that attempt has so far not been successful.
Its plan to set up another greenfield plant of 10 mt in Jharkhand has also not taken off in the absence of security of raw material.
However, this has not deterred the company to scale down its ambition to reach 40 mt capacity by 2025 as it is ready with alternatives. To compensate for the greenfield plants, the company now plans to double the capacity of its Vijaynagar plant in Karnataka to 20 mt by 2022, through brown field expansion.
“Given the hugely constrained domestic iron ore scenario, JSW Steel has resorted to large scale imports. Any relaxation in iron ore availability will be a further positive for the company,” said Ankur Kulshrestha, analyst with HDFC Securities.
“It is also envisaging a slurry pipeline from Jaigarh (Goa) to Vijayanagar plant to de-risk from domestic iron ore concerns,” he said. The 500 km long slurry pipeline will come at a cost of Rs 2,000 crore, but it would address the constraint of iron ore for expansion at Vijaynagar.
The company is also discreetly working on another brown field expansion plan at Dolvi in Maharashtra. It acquired 3.3 mt plant of Ispat Industries in 2010 for Rs 2,157 crore. Since then it has turned around the loss making unit and now it is expanding it to 5 mt capacity. This expansion is expected to be completed early next year.
But Sajjan Jindal has a much bigger plan for Dolvi. He plans to make it a mega complex with 15 million tonne capacity. The company has already started working on this, and acquired a sponge iron facility of Welspun Maxsteel in August. This facility is very close to the existing steel plant of the company at Dolvi and has a large land parcel and a private jetty attached to it. The acquisition has synergy in terms of supplying surplus pellets to WMSL and use of direct reduced iron from this plant for steel making operations.
But beyond this, the proximity of these two plants means it could be developed into a huge plant complex. And the jetty can help in transportation of raw material. The company has already applied to the environment ministry for clearance to increase the capacity of Dolvi plant to 10 mt from 5 mt. So if the plan for green field expansion in Jharkhand does not work out, the company knows how to compensate it to meet its growth ambition.
The company has another 1 mt capacity plant at Salem in Tamil Nadu, which is another example of the company turning around sick units. It acquired 0.3 mt capacity from Southern Iron and Steel Company in 2004 when it was a loss making unit.
With this, the company comes close to achieving 36 million tonne, a striking distance from the ambition to achieve 40 million tonne capacity by 2025. Addition of another 4 million tonne capacity for the billionaire promoter will not be tough as it keeps the route for inorganic growth open.
Source: http://www.business-standard.com/