Life has already come a full circle for Abhyuday Jindal, the 31-year-old Managing Director of Jindal Stainless Ltd (JSL). He had formally joined the family business, founded by grandfather OP Jindal, in 2015, when he took over as the Vice Chairman of Jindal Stainless (Hisar) Ltd, or JSHL.
Just a year before that, JSHL had been carved out of JSL, as part of an asset monetisation plan. This was needed to take the parent company out of a debt restructuring scheme that it had entered into in 2009. JSL branched into three more entities. Apart from JSHL, Jindal United Steel and Jindal Coke made up for the complete line-up. While these two were kept private, JSHL was listed on the exchanges, just like its parent.
Five years later, JSHL has been now merged back with parent JSL. The merger was announced in December 2020. It came nine months after JSL came out of the CDR package. The occasion is not lost on Jindal, now the Managing Director of JSL.
"While JSL becomes one of the top 10 stainless steel makers in the world, the move will also unlock value across the board, including for shareholders and customers, with its balance sheet expected to get the biggest boost," Jindal told Moneycontrol in a recent interaction.
The balance sheet had got a shot in the arm in March last year, when the company paid back Rs 833 crore to its banks and exited CDR. This will get better now. Through the present financial year, the company has lowered its debt mountain by Rs 1,200 crore, to Rs 3,500 crore. "We have managed to do it despite the COVID-19 impact," Jindal said.
JSL had reported a two-fold jump in its consolidated profit at Rs 80.64 crore for the quarter ended September 30. The company had posted a consolidated profit of Rs 39.52 crore in the year-ago period.
The better showing and reduced debt will have a bearing on some of the critical financial ratios. "The debt to equity ratio last year was 1.4, and the debt to EBITDA ratio was 3.1. We are targeting to reduce these to 0.75 and 1.75 by the end of this financial year," Anurag Mantri, Group CFO, JSL, said.
Jindal now hopes that the better financial health will lead to a re-rating of the company. In January, the company got an upgrade with a rating of 'IND BBB+' by India Ratings and Research, and 'CARE BBB+' with a stable outlook by CARE Ratings, for its credit facilities. It was previously assigned, August 2020, 'IND BBB' and 'CARE BBB', respectively.
The company plans to further apply for a rating upgrade, which will allow it to access international markets for loans at lower interest rate. But it is not for further expansion that Jindal is looking to raise money. He doesn't want to repeat history, when the company took on debts to expand and eventually was forced to undergo a CDR.
No leveraging
Jindal does plan to expand capacities, especially in its unit in Jajpur, in Odisha. The unit has a capacity of 1.1 million tonnes a year. The Managing Director now wants to double it. But it won't be financed through debt.
"We want to use internal accruals for that. That’s how we want to expand in the future. We can do a capex of Rs 2,000 to 3,000 crore in the next three years," Jindal said. Final details are still being firmed up.
The senior leadership at the company will instead want to use the better rating to access cheaper debt and replace the present loans on its books. "We want to be prudent and keep expenses under control. We don't want to leverage our balance sheet, but want to focus on keeping the financial ratios under control," said Mantri.
The Budget googly
Moneycontrol had reached out to Jindal just days before the Union Budget 2021-22, presented by Finance Minister Nirmala Sitharaman on February 1.
While the Budget was hailed for its focus on infrastructure spending, it didn't have very good tidings for the stainless steel sector. The government has proposed to waive anti-dumping and countervailing duties on imports of several stainless steel products from China and Indonesia.
The Indian Stainless Steel Development Association termed the move as an "unintentional gift" for China. "Suspension of duties will undermine domestic manufacturing and open the floodgates for cheap imports of stainless-steel imports in total stainless consumption, thus damaging the ‘Make in India’ movement and severely impacting the employment generation in the country," the association said.
Jindal too took to Twitter to share his concerns. "Indian stainless steel industry was keen to advance Govt's #atmanirbhar Bharat vision, but allowing free-flowing subsidized imports from Chinese companies impedes the #MakeInIndia goal. We await level-playing field," he said, tagging the Finance Minister.
As concerned as Jindal would be - imports had earlier delayed JSL's exit from CDR - he is yet to make any change on the expansion plans. Senior officials at the company said it's 'wait and watch' at the moment. If imports do flood the market, the JSL chief will surely want to save each rupee.
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