Jindal Steel and Power Ltd (JSPL) plans to reduce its debt and meet its carbon emissions targets with the sale of its entire stake in its thermal power unit to Worldone Pvt. Ltd, a company of the promoter group. JSPL Managing Director VR Sharma said the sale of his 96.42% stake in Jindal Power Ltd for ??7,401 crore would strengthen the company’s balance sheet as it would help to retire ??3,000 crore of debt. Edited excerpts from an interview:
Do you see the continuation of the current boom in the steel industry?
The industry is experiencing dynamism in terms of profitability and demand. And the demand will be there all over the world. However, prices can fall or remain stable. Different governments around the world have declared stimulus packages of around $ 17 trillion to be spent on infrastructure projects in three years. On these infrastructure projects, every year we get about $ 5,000 billion in spending and of that, the steel industry would see about $ 1 to $ 1.5 trillion coming in, because 70% of the demand for steel is still supported by government projects, which stimulates the economy in terms of growth. So the demand boom, we see it continue.
And how does JSPL plan to take advantage of this increased demand?
Steel is a business in which we cannot increase capacity overnight. In the last two years, we have gone from 5.5 million tonnes per year (mtpa) to 7.5 mtpa. And we intend to grow to 8.5 million tonnes per year in this fiscal year. We want to set up a factory and draw a capex of ??18,000 crore to increase capacity to around 14 mtpa by 2023. The country is expected to increase from existing 110 mtpa to 300 mtpa. The difference would therefore be 190 million tonnes. Who will bridge this gap? There are only five major players in India today that produce around 55 mtpy of steel. These 55 mtpy represent 50% of the total steel we produce in the country. So we are planning our expansion. In almost a decade, we would increase our capacity to 50 mtpa.
Will your expansion plans increase your debt?
In 2016, we had a debt of ??45,000 crores. Today we have a debt of ??13,000 crore and over the next few months this will decrease further by ??3,000 to 4,000 crores. We will have an opening debt of ??9,000 crore in FY22. Our goal is to bring it down even lower. We don’t think we are threatened by debt at any time.
Why is JSPL leaving the energy sector?
When we have the thermal power plants and we look at our consolidated balance sheet, the total coal consumption becomes very high. Second, our CO2 emissions per tonne of fabrication steel amount to more than 2.8 tonnes of CO2 per tonne of fabrication steel. It is too large a number. We want to bring it on par with the best factories in the world which are at a level of around 1.85 to 1.9 per tonne of steel. That’s why we started looking for someone who could buy our energy assets. But despite our best efforts, we couldn’t find a suitor. Our promotion company, Worldone Pvt. agreed to buy it. When this company becomes an independent entity, JSPL’s balance sheet would be healthy with regard to our ESG standards regarding CO2 emissions. The proceeds of the sale would be used to repay the debts of ??3000 crores.
You are also setting up a container business. Why?
The world is facing a container shortage, just like India. So we decided to manufacture containers in our Odisha factory. The technology is nearing completion and we will be in production by the end of this fiscal year. To start with, we would produce 15,000 containers per year. While this will not solve the problem of the container shortage, it will certainly give Indian industry a break.
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