A merger could be a very good opportunity...

Interviews

A merger could be a very good opportunity...

A merger could be a very good opportunity...

03 May 2020 Long Read
The pandemic is going to have a much larger impact on the metro cities – be it urban housing real estate, commercial real estate – these sectors are in for a long downturn in terms of demand, in terms of new capacity coming up. But we are noticing and hoping that rural India, rural housing, and road and highway projects and also the metro projects in these cities, will give the demand impetus that is required. “I think the demand will come from two areas – government projects and the rural economy,” says Parth Jindal, son of Sajjan Jindal, Chairman, JSW Group. Parth Jindal is the Managing Director of JSW Cement and JSW Paints, as well as the chief executive of the group’s sport company, which owns Bangalore Football Club Haryana Steelers and is Chairman and Co-Owner of Delhi Capitals. Parth Jindal is also the Founder of Inspire Institute of Sport (a project that prepares athletes for Olympics), Director of JSW Ventures and Director of JSW USA.

In an exclusive video interview hosted by CONSTRUCTION WORLD, he shares more on the group’s strategy and operating model, capacity utilisation amid COVID-19, growth plans going forward, and more...


Excerpts:

On the group’s cement business and strategy: It is a tough time for business and a tough time for the country. Having said that, we are hopeful that things will open up slowly in times to come and we are also seeing slow traction, especially in rural India, when it comes to demand for our products. 

Today, at JSW Cement, we are a 14 million tonne company and our aim is to become a 25 million tonne company in the next three years, and then double that and go to 50 million tonne by 2025. Given the COVID situation, there will be some delay to these plans because investment and expansion by the private sector in general will come down substantially in the economy.

A lot of consolidation over the last three years has happened in the cement industry – Nirma buying Lafarge’s assets, UltraTech buying Binani’s assets, Dalmia Cement buying Kalyani Cements and Murli Cement. So, a lot of the big assets that were available have already been taken by the larger cement groups. There are a handful of assets that are still available that will be coming up for either a bilateral sale or acquisition or going to the IBC shortly. 

In terms of our strategy at JSW Cement, one has to actually go into the history of this company for this. We started very clearly to backward integrate or forward integrate, to use the waste products that come out of the power plants of JSW Energy and the steel plants of JSW Steel. So both, fly-ash and slag – which are the main materials other than limestone if you are making PPC cement or PSC cement – both PPC and PSC have between 30-60 per cent of both fly-ash or slag. So the initial thought process of JSW Cement was to use the raw material advantage that we would have by sourcing these raw materials in-house and by co-locating with steel or power plants.

As of now, our strategy has been tied either to the growth of JSW Steel or JSW Energy. As JSW Steel keeps expanding its blast furnace capacity and more slag becomes available, our strategy has been to use this slag and expand our capacity at JSW Cement. That’s why today we stand at 14 million tonne; 8 million tonne out of this is in the south – where we get our raw material from the Vijaynagar steel plant, which is a 12 million tonne steel plant today. In the West, we are currently at 2.5 million tonne cement capacity – we get our raw materials from the Dolvi steel plant of JSW Steel. In the East, we are currently at 3.6 million tonne – here, we are get our raw materials from Tata Steel or Jindal Steel and Power or from Jindal Stainless. So, our strategy has been very much revolved around steel plants. 

Now, going forward, we are making a shift in our strategy. We have been acquiring limestone mines in the auctions that have been conducted by the Centre and the respective state governments. We have been successful in acquiring a large limestone deposit in Rajasthan – in the Nagaur district. We have also acquired a limestone block in Kutch, in Gujarat, and also one in Chhattisgarh near the Monnet Ispat steel plant of JSW Steel. So, going forward, it is a mix of a strategy – we will be putting up grinding units, also expanding our grinding units’ capacity, but we will also be putting up clinker units to take our capacity beyond 25 million tonne. 

The reason we are not going for acquisition at the moment is one reason being that our balance sheet is relatively levered – we have grown from 6 million tonne to 14 million tonne in three years. So we are taking a lot of leverage in order to do that. Our capacity to take on a very big acquisition is limited, unless the group supports. But the group has an ambitious plan in steel – so a lot of capital is going there.

Also, time being on my side, I want to grow organically and then go in for an IPO. And then post the IPO, use the funds to build a war chest and look at potential acquisition opportunities. 
On COVID19 throwing up M&A opportunities & softening raw material prices: There is a lot of stress in the system. A lot of companies that were just surviving, the COVID situation may have thrown them over the edge and they may be looking for an exit or a merger. And, we are open to both, because given our relative size, a merger could be a very good opportunity – where rather than a cash transaction, it is a shared transaction where we combine two entities and create a larger cement company. We have just started thinking on those lines. There is some interest by some companies who are also looking at this opportunity. But the limit for JSW cement to currently do cash transaction is limited, but a merger or share swap – those kinds of deals would be very interesting to look at right now.

On the raw materials side, coal and pet coke prices – which are both big raw materials for cement – as well as diesel prices, are likely to come down drastically and have already started coming down. This will have a big impact on power and fuel and on logistics cost. Right the per tonne margin is not a real problem – the per tonne margin is good and actually better than what it was pre-COVID. But, it is your fixed cost which is weighing everything down because of the sheer lack of volume that is there. Everyone is struggling to operate because there is a lot of fear in the system of truck drivers, migrant labour, and villagers not allowing people to leave their villages and come to the factories to operate. We are hoping that in May we come to a 30-40 per cent capacity utilisation of pre-COVID, and hoping to reach at least 50 per cent in June, and then things hopefully should improve.

Low capacity utilisation: One of the things we are already seeing is that the pandemic is going to have a much larger impact on the metro cities – whether it is urban housing or real estate, commercial real estate – these sectors are in for a long downturn in terms of demand, in terms of new capacity coming up. But we are noticing and hoping that rural India, rural housing – the PMAY, etc, and road and highway projects and also the metro projects in these cities, will give the demand impetus that is required. The government is pushing for these and have already allowed construction works for these and government projects to commence on site. Our plants in Karnataka too are starting to see orders from government projects. I think the demand will come from two areas – government projects and the rural economy, which has not been very badly hit by the COVID and has benefited from a bumper agricultural crop. 

The Paints business: JSW Paints is our first pure B2C venture when it comes to the group, where the end consumer has a much larger say in the buying pattern of which company to choose. The group has been thinking over the years on how we should diversify our group because we are linked to the Indian economy – whether it is cement, steel, power, infra... We thought that one needs TMT to build a home, cement to build a home, and paint to paint a home. So, as a group, we thought on how JSW can own a home by providing all the raw materials required for producing a high quality home. 

When we looked at the supply chain synergies, we had all the synergies in place – the godowns, the transportation, etc, all figured out. It was all about getting the product correct and the market strategy correct and building a pool in the consumers mind.

We launched in August 2019 predominantly in the south, and as of March, we have about 750 retailers on board. Our target was to get to a 1,000 retailers by end of March, but it got pushed out because of COVID. But the response has been positive – we have actually been doubling sales every month in JSW Paints on the decorative side. FY2021 is going to be a big year – we are targeting a turnover of Rs 500 crore from the decorative segments. We also have an industrial paints division, which supplies the coil coatings required for colour coated steel which goes into the white goods and roofing segment. We did a turnover of about Rs 350 crore in the industrial paints division, and this year we are targeting to do about Rs 600 crore in the division, which should cater to about 90 per cent of JSW Steel’s requirement. So overall, we are targeting a turnover of Rs 1,100 crore of revenue in paints. Having said that, now, due to COVID, we are recasting certain numbers.

Operations: For our steel plants, we have restarted all the seven blast furnaces, not including Bhushan, that we had taken down. Demand is a real challenge when it comes to steel. We are currently exporting about 80 per cent of all our products, and we exporting to China. About half of our exports are going to China. 

When it comes to cement, all our plants, except the one in Andhra Pradesh in Kurnool, have started operations. We are running at about 30 per cent capacity utilisation. 
Power plants are running but demand for power is down, so we run only whatever is required and depending n what demand we get.

Ports were always running.

In terms of paints, the industrial units in Maharashtra have just got approval to start running. So we have restarted that. The decorative unit in Vijaynagar so far does not have approval, we have approvals only to dispatch the materials already prepared. So only finished goods dispatch is happening.

Also check our video interview with Dr Niranjan Hiranandani, Co-Founder and Managing Director, Hiranandani Group, and President, ASSOCHAM and NAREDCO here.

Also check our video interview with MR Jaishankar, Chairman & Managing Director, Brigade Group here. 

Also check our video interview with Aditya Virwani, COO, Embassy Group here. 

Also check our video interview with Dr. Prashanth Reddy, Managing Director, FunderMax India here. 

Also check our webinar on ‘COVID-19: Lessons from Asian cities’ here. 

Check our webinar on ‘Roads to Recovery’ here. 

Check our webinar on ‘The Real Estate Challenge’ here. 

Check our webinar on ‘The Architect Challenge’ here. 

Check our webinar on ‘Infrastructure: National Infrastructure Pipeline – the Rs 102 trillion opportunity’ here. 

Stay tuned for Construction World’s FREE webinars. View our complete webinar calendar and previous webinars here

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