JSW Group: Life Beyond Steel

ONE EARLY SUNDAY morning in December, when Toranagallu village in Bellary-Hospet iron ore belt of Karnataka is yet to wake up from its weekend slumber, a Bombardier Global Express lands at Jindal Vijaynagar airport in the village. On board is JSW Group chairman Sajjan Jindal, here to take stock of Vijaynagar SteelWorks that is expanding capacity from 12 million tonnes (MT) to 19MT by next financial year.

For shop floor workers familiar with Jindal’s weekend self-charging habits, the visit is hardly a surprise, though. Sajjan Jindal tells Fortune India his world revolves around coils & bars, capacities, markets and product innovations. This passion drove the second son of industrialist and politician, late O.P. Jindal, to counter the might of Tatas and Mittals to build from scratch the country’s largest steel empire with 27MT capacity in 30-odd years. Now, the $22-billion group is spending ₹48,852 crore to scale up steel capacity to 37.8MT by March 2025. Next targets are 50MT by March 2027 and 75MT by March 2030. In doing so, Jindal hopes to reinvent JSW Steel as one of the world’s largest green steel producers. “If we make 75MT the way we are making 27MT, the world will not accept it considering the pollution the capacities will produce,” says Parth Jindal, Sajjan’s son and MD of JSW Cement and JSW Paints.

But steel is one part of the story. Sajjan Jindal's eyes are set on opport- unities that India's rise as one of the few bright stars amid global recession is throwing up. Jindal expects domestic private sector groups like his to play a big role in India's journey from a $3-trillion economy to a $10-trillion economy in 10-12 years. His target: multiply revenues three-four times to $60-80 billion by 2030.

Steel alone cannot take him there. So, he is looking beyond — at paints, cement, renewable energy and ports besides emerging businesses like electric vehicles (EVs) and drones. At the same time, captive businesses such as power generation and ports are being given a free hand as separate companies to grow independently using their own cash flows. The entry into cements and paints are adjacencies since they use inputs from the group’s steel business. EVs will require building a completely new business from ground-up through technical collaborations, a bigger challenge.

Green will have to be a vital theme in all businesses, old as well as new. Of these, JSW Energy is key to green ambitions of group companies. The electricity utility company intends to become a products and services player and add solar and wind power projects to expand from 6.3GW to 20GW by March 2030. It is investing in manufacturing wind turbines, solar panels and lithium-ion batteries and is implementing green hydrogen and green ammonia projects. This will ensure enough supply of green energy to group entities such as JSW Steel. The steel major, as part of its green push, is looking to replace coking coal with green hydrogen. JSW Cement's green journey started with using slag from steel plants and fly ash from thermal power stations as it looks to stop limestone use and its mining.

“The group will add a minimum of two-three businesses by 2030,” says Sajjan Jindal. The business development team he heads has been looking at opportunities in emerging areas such as defence, EV, semiconductor, drones, IT services, among others. “As a large business house, it is necessary for us to explore these opportunities,” says Jindal. The group is in the middle of a debt-funded ₹85,000 crore capital expenditure cycle that will go on till March 2025.

Debt has been the key to JSW’s growth, unlike rival steelmakers Tata Steel and ArcelorMittal, which reduced debt during Covid-19. On March 31, 2022, JSW Group’s net debt was ₹75,000 crore, up from ₹69,000 crore in FY21. In nine months till December-end 2022, it had grown by another ₹13,000 crore.

In March quarter, though, group debt will come down by ₹3,000-4,000 crore and is expected to be around ₹85,000 crore by end of FY23, says Seshagiri Rao, joint MD and group CFO, JSW Steel. Group earnings before interest, tax, depreciation and amortisation were ₹45,000 crore in FY22. It posted a net profit of ₹25,000 crore on revenue of ₹1.65 lakh crore. Can these metrics support the debt-fuelled expansion amid financial turbulence and tough competition from peer conglomerates?

Jindal’s Obstacle Race

Sajjan Jindal, 63, is not new to crises. He has faced recessions, steel dumping, export bans and, yes, even loan defaults. The journey started in 1984 when father O.P. Jindal asked him to resuscitate the family’s steel business in Vasind, Maharashtra. The unit was making ₹3 crore losses on revenue of ₹9 crore. He turned around the business within two years by improving its product mix and finding new markets. Profit and revenue from businesses under him touched ₹15-20 crore and ₹250 crore, respectively, over next seven-eight years. This gave him confidence. He sought his father’s approval to build a plant matching Tata Steel’s then 2MT capacity in Jamshedpur built over 90-odd years. O.P. Jindal said he would give blessings but not money and wouldn’t mind one of his sons failing in business. The young Jindal went around the world studying steel making before incorporating Jindal Vijaynagar Steel (JVSL) — distinct from Jindal Iron And Steel Co. (JISCO) that he was running then — to build a 1.2MT plant at Vijaynagar at a cost of ₹4,000 crore (JISCO and JVSL merged to form JSW Steel in 2005). But funding was a problem. He met the then ICICI chief, Narayanan Vaghul, for a loan. The plant was built on time but got flooded the night before it was to go onstream. The coal conveyor belt stopped working. Jindal himself picked up the shovel to feed coal into the furnace. But the coal, too, was wet. The machines ground to a halt. The half-melted iron inside the pot hardened. The plant restarted after eight months but steel demand had collapsed by then following the 1998 Asian financial crisis. In 2000, the company defaulted on debt and went for corporate debt restructuring (CDR). It came out of CDR four years later. That was Jindal’s first and last loan default.

The second time steel sector collapsed after the 2008 global financial crisis, JSW Steel was strong enough to acquire sick assets such as Ispat Industries and Welspun Maxsteel. It repeated this when Essar Steel, Bhushan Steel and Bhushan Power And Steel (BPSL), among others, filed for bankruptcy under the Insolvency And Bankruptcy Code in 2007. JSW, along with Aion Investment, acquired BPSL for ₹19,350 crore and Monnet Ispat And Energy (renamed JSW Ispat Special Products) for ₹2,875 crore.

Years before this, in one of its many struggles with regulatory and legal roadblocks, Supreme Court ban on iron ore mining in Bellary in 2011 had forced JSW to cut production and scramble for iron ore from other parts of the country and abroad. The court lifted the ban partially in a month. But the episode opened Jindal’s eyes to risks of not having own raw material supply, especially when he saw Tata Steel, with captive mines, weathering the crisis. He decided to enter iron ore mining. When coal prices shot through the roof after Covid-19, he decided to procure coal mines, too. JSW Steel now has 13 iron ore mines (nine in Karnataka and four in Odisha) and three coking coal mines. It met 43% iron ore requirements from captive mines in FY22.

Did the 30% export duty imposed in May last year hurt him? Especially, when he was trying to establish business in high-value markets such as Europe, Latin America and Middle East. “I don’t think about things not in my control. If something unusual happens, I will float with it and not get stressed,” says Jindal.

Steely Resolve

Marico founder Harsh Mariwala recalls a conversation with Sajjan Jindal in 1998. During a dinner, Mariwala asked Jindal if he was worried about his plant not taking off. Jindal said he was not stressed but sad that shareholders were unhappy. The stock had crashed to ₹2 from its listing price of ₹10. “Jindal thinks big. He is highly ambitious with high risk appetite,” says Mariwala.

O.P. Jindal often told his sons — Prithviraj, Sajjan, Ratan and Naveen — that they must do their best with honesty and leave the rest to fate. “If it doesn’t succeed, there may be something better in store,” says the JSW Group chairman.

And he follows his father's advice. The young Jindal used to attend annual general meetings of big groups to understand how legends such as J.R.D. Tata, Aditya Vikram Birla and Dhirubhai Ambani think and articulate. But his biggest influence was Jamsetji Tata for building massive steel capacity at a time when there was hardly any technology available in the country.

The inspiration stayed. JSW Steel, which had 11MT capacity about 10 years back, has grown to 27MT and expanded its value added/specialty steel portfolio from 30% to 60% with the help of Japanese giant JFE. Value-added products like automotive, colour coated, tin plate and electrical steel fetch 20-30% more margins than crude steel. Value addition has also helped exports, which stood at 28% of output in FY22.

But all is not well. Russia-Ukraine war has brought new challenges. Foreign players are dumping cheaper Russian steel in India like Chinese steel five years ago. Demand has evaporated in Europe. China is yet to return to normalcy post Covid-19 restrictions.

The competitive landscape has also changed. JSW is now competing with the combined might of global giants ArcelorMittal and Nippon Steel who jointly bought Essar Steel for ₹42,000 crore through bankruptcy process. ArcelorMittal-Nippon Steel (AM/NS) is investing ₹60,000 crore to expand Hazira capacity from 9MT to 15MT. Odisha government recently approved AM/NS India Ltd.’s proposal to set up a 7MT plant in Jagatsinghpur district.

JSW Steel is also competing with ArcelorMittal India to buy National Mineral Development Corporation’s plant in Chhattisgarh. The 3MT plant is expected to cost ₹20,000 crore. Tata Steel is the next strong challenger. The Jamshedpur-based giant, which acquired Bhushan Steel for ₹35,000 crore, plans to invest ₹1 lakh crore to double capacity to 40MT by 2030. It reduced debt by ₹50,000 crore during Covid-19. It gets more than 90% iron ore that it consumes from captive mines. ArcelorMittal and Nippon, on the other hand, have global experience, especially in green technologies, and access to capital from global banks.

But an unfazed Jindal is expanding in eastern and northern markets. He was earlier focused on south and west due to a family understanding that his brothers would get to do business in north and east. Sources say the brothers don’t have any such understanding now. However, the brothers hold 20% stake each in the other’s legacy businesses — except Sajjan and Naveen, who unlocked cross-holdings 14 years ago.

Funding Growth

As the group goes on an expansion overdrive, investors are concerned about JSW Steel’s rising debt. “The only major risk for JSW Steel is its debt. It should not use debt aggressively for acquisitions and capacity creation,” says Arun Kejriwal, founder of advisory firm Kejriwal Research and Investment. The company had ₹69,498 crore net debt in December 2022. This rose 22.7% in last three quarters (March-December 2022). If cash flow doesn’t improve and global challenges escalate, it will have to slow down expansion. But Seshagiri Rao says debt is manageable. “Net debt to EBITDA ratio of JSW Steel was 3.5x as on December 31, 2022. We have been giving guidance of 3.75x. Though FY23 has been one of the worst years, we are below the debt limit,” he says. When new capacities start generating cash, debt servicing will be easier, he adds.

Besides, low construction cost is a plus. This reduces conversion cost of iron ore to steel. “JSW’s management team cracks down big projects into sub-projects and gives contracts to multiple companies. This costs less than contracting the entire project to engineering giants like L&T or Tata Projects,” says a senior executive.

JSW Steel is going to spend around ₹15,000 crore, ₹20,000 crore and ₹15,000 crore in FY23, FY24 and FY25, respectively. The group’s overall spending will touch ₹85,000 crore ($10.2 billion) by FY25 as power, cement, port and paint businesses expand. Parth Jindal says JSW Group is expected to double revenue to over ₹3 lakh crore by FY26 and increase it further to ₹5 lakh crore by FY31. The management expects that the increase in revenue will support the group’s $48 billion investment requirements up to FY30.

Daring Diversification

“Whatever businesses we do would be capital intensive. That is our core strength,” says Sajjan Jindal. While building its steel business, JSW Group took big strides in power, ports, cement and paints, which Jindal considers adjacencies that are as capital intensive as steel. It started energy business to feed steel plants and later started selling surplus power. The ports business (JSW Infrastructure) was meant to bring raw material for steel and ship out finished goods but has now started doing business with third parties. The group built cement business to use environment impacting by-products, fly ash and slag, from steel and power plants.

Parth Jindal, the only son of Sajjan who built cement and paint businesses from scratch, says steel has been the family’s mother business since his grandfather's time. “Steel runs in our blood. It runs in our ethos,” he says. “Now, each of the other businesses has reached maturity, each has become ambitious,” he says.

However, it will not be business as usual. JSW Group says expansion is an opportunity to play a big role in energy transition. “Steel, energy and cement are the most polluting industries in the world along with oil and gas. When we expand, we want to grow in a green and sustainable way,” he says.

To help group companies meet green goals, JSW Energy wants to increase share of renewables from 25% to 85%. It will rise to 65% with addition of 1,750 MW from recently acquired Mytrah Energy (for enterprise value of ₹10,530 crore) and 2,500 MW under-construction wind and hydro projects likely to be commissioned over next two years. The company is also ahead of timelines in achieving its near-term capacity target of 10GW by FY25. “The 20GW target will be achieved much before FY30,” says Prashant Jain, MD, JSW Energy.

However, one of the biggest challenges in renewables is shortage of wind turbines and solar panels. That is why JSW Energy aims to be a fully integrated player by manufacturing wind turbines, polysilicon wafers and solar panel modules. JSW Neo Energy, a wholly owned subsidiary, is pursuing emerging energy businesses such as hydro pump storage, batteries and green hydrogen, and is looking to become an energy product and services company. The energy research is going on under Jain. “How do we make electrolysers in India? How do we do tie-ups so that we can separate water and create hydrogen and oxygen and use the oxygen in the steel plant and create green hydrogen to either consume or sell are the key questions,” says Parth Jindal.

JSW Energy generated revenue of ₹8,167 crore and profit of ₹1,728 crore in FY22. It will face stiff competition from Tata Power and Adani Group. Tata Power posted a consolidated profit before exceptional items of ₹2,298 crore on a revenue of ₹42,576 crore in FY22, while Adani Power recorded a profit of ₹4,912 crore on a revenue of ₹31,686 crore.

The major players in power business have almost the same focus as they want to completely phase out thermal capacities and transition to renewable power. They also want to turn to consumer focused power companies. They have got strategic funding from global investors. In solar panel manufacturing, JSW Energy will face challenges from Mukesh Ambani’s Reliance Industries, which is building five Giga factories in Jamnagar, Gujarat, at an investment of ₹75,000 crore to make solar panels and batteries.

JSW Infra, which has three ports and seven terminals in India, is looking to increase cargo handling capacity from 153MT to 200MT by FY25 and 300MT by FY30. The company posted a profit of ₹318 crore on revenue of ₹2,273 crore in FY22. Its major rival is Adani Ports and SEZ, which has 13 strategically located ports and terminals with 538MT cargo handling capacity. It accounts for 24% of the country’s port capacity. Analysts say JSW will be able to increase its cargo handling capacity faster as there is less competition in the sector.

According to Parth, ports will be the mainstay of JSW Infra. “But we will also evaluate other businesses within infra such as slurry pipeline infrastructure and shipbuilding,” he adds. The group wants to list the company, as well as renewable and cement businesses, in 12-18 months.

‘Cementing’ A ‘Colourful’ Future

JSW Group’s cement expansion also has a green element. When it manufactures cement by converting by-products — fly ash and slag — it will save energy and prevent large carbon dioxide emissions. “JSW Cement is one of the greenest cement companies in the world when it comes to emissions,” says Parth Jindal. “We want to further improve it.” JSW Cement is working on projects to make zero clinker cement, which means cement without limestone, so that it doesn’t have to mine limestone. It will use fly ash and ground-granulated blast-furnace slag with chemical additive to create concrete. “We have a plan to go from 17MT to 50MT in cement by 2030. It will become 21MT by March. We have a long-term plan to increase capacity further to 100 MT,” says Parth.

Aditya Birla group’s UltraTech (132MT capacity at present) and Adani’s ACC and Ambuja (70MT together) are the leading players in the cement market now. After Adani's Holcim deal, UltraTech has approved a ₹12,886 crore capital expenditure plan that will escalate competition in the segment. According to Credit Suisse and Goldman Sachs, UltraTech is emerging stronger in an uncertain and highly competitive environment. JSW will have to sacrifice some margins to stay relevant in the battle, it says.

About four years ago, JSW forayed into paints. In FY22, JSW Paints posted a ₹1,060 crore turnover. Of that, 40% was decorative and 60% industrial. This financial year, it is targeting ₹2,000 crore. Of that, ₹1,000 crore will be from decorative and ₹1,000 crore from industrial. “We want the ratio to be 80:20 by 2025,” says Parth. In industrial paints, about 70% capacity is captive. JSW Paints’ gross margins are 2-2.5% below the market leader. “We are spending heavily on promotion. We are making money in industrial paints. Decorative will become profitable from next year,” says Parth.

Deven Choksey, MD, KRChoksey Holdings Pvt. Ltd, says there is a tendency for industrial conglomerates to expand into consumer facing businesses like paints. “Some like Reliance and ITC have succeeded. JSW is looking at B2C for building the brand. However, paints and cement are not yet fully B2C businesses. They need a B2C mindset to create consumer companies.”

It will be a long road for JSW Paints, with 1.5 lakh kilolitres capacity, to catch up with the giants in the segment, Asian Paints (17 lakh kilolitres) and Berger Paints (3.96 lakh kilolitres). JSW was present only in South when it launched in 2019. In 2021, it expanded to West, followed by North and the East. The product range expanded to water-based paints. The company made a difference in pricing through ‘any colour one price’ strategy. It has opened over 300 Colourvista Senses retail stores, while Asian Paints has over 450 Colour Ideas stores and 1.45 lakh retail touch points.

JSW Paints has two manufacturing units — one for industrial coatings in Vasind (Maharashtra) and one for decorative at Vijayanagar. In comparison, Asian Paints has 26 plants. It also has a strong portfolio of coatings for decorative and industrial use and also offers wall coverings, adhesives and services.

The paint industry will see increased competition with the entry of Aditya Birla group company Grasim Industries, which is building six plants across India at an investment of ₹10,000 crore. Nuvama Research recently said it does not anticipate any threat to Asian Paints from Grasim. Asian Paints has sharpened focus on allied segments such as waterproofing and adhesives and has big plans for home décor.

The Tech Avenue

Sajjan Jindal had the Hamlet moment in EV — to be or not to be — multiple times. “Last time, we spent a lot of money. But we didn’t pursue it. The technology has changed since then and government has come up with incentives. We are re-looking at the project,” says Seshagiri Rao. JSW Group plans to buy technology for EV. “EV penetration will happen much faster than everybody thought earlier. We need to acquire basic platform and technology,” says Rao. The company will have to spend ₹25,000 crore to produce at least one lakh cars a year, according to analysts. “EV will be done at promoter level as a separate business,” says Rao. Some EV technologies will also rub off on another business the group is exploring: drone manufacturing in association with a technology partner. JSW Group has also checked on the possibility of entering chip manufacturing.

The group has shelved plans for financial services. However, it will be in financing through ecommerce entity JSW One platform for which it has applied for an NBFC licence. It is also evaluating launch of an IT services firm. But this one will be completely different from JSW’s DNA. L&T is the only example of an infrastructure and manufacturing company having a successful IT business. JSW Group is also present in real estate, venture capital and microfinance businesses.

The group has also forayed into sports as part of a brand building exercise. It is a profitable venture. JSW Sports owns franchises Delhi Capitals (in IPL), Haryana Steelers (Pro Kabaddi), Bengaluru FC (ISL) and Pretoria Capitals (South African league). It is also looking to foray into e-sports through online gaming applications.

There are many other opportunities as well, but not all for JSW.

Interview

“Whatever businesses we do would be capital-intensive”

Sajjan Jindal, chairman, JSW Sajjan Jindal, chairman, JSW Group, speaks on India opportunity, future of steel, dealing with stress and self-charging. Edited excerpts:

On India growth opportunities

We are one of the nation’s growth drivers. India’s steel consumption is expected to rise from 110MT to 125MT. There is a huge opportunity for core sector companies. We want to grow faster than the growth rate of the economy. JSW will have a big role to play in India's journey to a $10-trillion economy in 10-12 years. PSUs have supported India’s growth in last 75 years. It’s private sector's turn now.

On future of steel

Steel demand will remain strong for a long time. We are increasing production of specialised steel to reduce weight and increase strength. Reducing weight of steel in a car will increase fuel efficiency. It will also stretch life of batteries in EVs.

On new businesses

New areas such as defence, EV, semiconductor and drones are emerging in the country. Our business development group is looking at opportunities in emerging areas. As a large business house, it is necessary for us to explore all these opportunities. We are good at manufacturing. We would like to focus on areas where we are strong. One area where we are highly focused is renewable energy. JSW Energy has been investing in large renewable projects for quite some time. Now, we want end-to-end integration in our renewable energy business.

On capital strategy

Whatever businesses we do would be capital-intensive. That is our core strength. We never got scared with ups and downs as we stayed focused. Over-leveraging is a major issue that the steel industry faced. When steel cycle hit bottom, over-leveraged companies were impacted heavily. Diverting money from one business to another also created a problem for companies.

On JSW in 2030

The group will be highly digitised in eight years. The size will be three-four times what it is today. A minimum of two-three new businesses will be added. We mostly focus on capacity. That turns into numbers.

On talent management

Management succession is a continuous process. There are two-three people preparing for each top position. Since we are growing new businesses, we can use talent across functions. We rarely hire laterally. We mostly build leadership teams with people in the group. Since we are growing fast, we are able to satisfy expectations of employees.

On dealing with stress

These are some things beyond your control. When something is beyond control, I don’t think about it. I only think about what is in my control. If something unexpected happens, you have to float with it. I don’t get stressed. My father used to say we should do our best with honesty and leave the rest. If it succeeds, good, if it doesn’t, maybe there is something better waiting for you.

On self-charging

I get recharged when I go to my plants. That is my relaxation and holidaying. I like to be in the plant once a week or 10 days. My plant visits are mostly on Saturdays or Sundays. They may extend to Monday. There is hardly any time nowadays. I have to travel a lot, pursuing new ideas. I love to do research and R&D. However, I do work out regularly and play tennis and squash.