Clinker plant with Rs 800 cr investment in UAE will go on stream in January: MD of JSW Cement

Suresh P Iyengar Mumbai | Updated on November 28, 2019 Published on November 28, 2019

Parth Jindal, MD, JSW Cement

We are seeing revival in cement sales in India since November, says Parth Jindal

JSW Cement has surprised many with plans to invest Rs 2,800 crore for additional capacity of 11 mtpa when the sector is reeling under excess production capacity built-up especially in the southern market. In an interaction with Business Line, Parth Jindal, Managing Director, JSW Cement and scion of JSW Group is confident that the învestments made in a sector when others are skeptical will always do well and that is exactly why it is called risk capital. Excerpt:

Why is the IPO of JSW Cement linked to its capacity expansion?

We firmly believe to be relevant in any market a company should have at least 10 per cent market share in that business. Today, JSW Cement’s market share is hovering between 3.5 per cent in South and 5 per cent in the east and west. We need to have enough volumes to achieve the 10 per cent market share target. On an anaverage we have four per cent market share in the markets we operate. Since we do not have a presence in central and northern markets our market share is less compared to pan-India players.

Does it also have something to do with valuation?

Yes. Large cap cement companies which are over 20 mtpa are de-risked geographically and also well placed on raw material side. Mid cap companies are located at certain pockets and small cap guys are there in one or two states. If infrastructure projects are cancelled - like it happened in Andhra - mid-cap cement companies will be finished. But if you are big like UltraTech, Ambuja, Dalmia or Shree Cement you are well placed. For these guys, if south is going through tough times, other regions will compensate. Stock market also rewards companies which are derisked geographically. A small player will be finished if a larger company drops prices suddenly. Moreover, for a company that is part of JSW Group to be part of mid-cap does not speak well. After listing, we would logically merge Shiva Cement with JSW Cement.

What derailed your stated goal of achieveing 20 mtpa capacity with an investment of Rs 2,000 crore by 2020?

The main concern was the cash availability and EBITDA also dropped. So, the free cash flow available for fresh investment was not available. This forced us to delay the stated target by an year. Last six months was almost a wash out for cement companies and EBITDA was also low compared to our target. Now since there is a revival in demand, we will be accumulating the cash and deploy it from April onwards. We are seeing revival in sales since November not only in terms of sales but also on inquires. This is true across sectors including steel and power. It looks like all lead indicators are pointing towards a revival. Both Government tenders have private sector companies are also re-looking at investment. Though it is true that there are more government projects that private sectors.

How do you react to cartelisation charges against cement companies for holding prices high artificially?

Cement prices are currently at rock bottom. It went down during monsoon and has not picked up since. If any one wants to buy cement now is the time. Prices vary between Rs 240-320 per 50 kg bag. It dropped down to Rs 220 while the healthy pricing of Rs 280 was last seen in March quarter in Hyderabad which is a good indicator of prices in southern market. It dipped from Rs 280 to Rs 220 in the last six months due to the monsoon.

Will the cancelling of projects in Andhra Pradesh affect JSW Cement?

Delay in infrastructure projects in Andhra has caused huge price depression in entire southern market as companies there switch their sales. We have five mtpa capacity in Andhra and we are pushing material in Telangana, Tamil Nadu, Kerala and Karnataka. This may affect prices in those regions. It is a desperate sales as everyone in Andhra wants to keep their factory running. My interaction with the Andhra government states that demand will start picking up from second half of January probably from Pongal, a key festival in south. We believe prices in south will pick up by Rs 15-20 a bag from then.

Are cement companies enjoying fall in raw material prices?

The benefit of the fall in prices of raw materialcomes with a lag as every company is sitting on high cost inventory. We will see the benefit of fall in raw material in March quarter. It was a double whammy during the monsoon when cement prices fell and every other company was holding high cost raw material inventory. If prices firm up in March quarter, the lower raw material cost will boost margins.

What is the logic behind setting up a unit in UAE to tap western market in India?

Currently, the clinker to tap the Mumbai cement market comes from Gujarat but we are bringing it from Fujairah. Ambuja and UltraTech are bringing clinker through sea route and grind it near Mumbai. The freight from Gujarat and Fujairah to Mumbai are same because they are bringing it in small vessels and we bring it in big barges. We have decided to do a bigger operations overseas with an investment of $110 million (Rs 800 crore) and the project will be completed by January end. Currently, we are importing clinker from different countries and we grind it at our 2.2 mtpa Dolvi unit but come February we will source clinker from our own overseas factory. Allotment of limestone and clearances in UAE is much faster. Interestingly, 70 per cent of the limestone allotted to JSW Cement there is of steel grade. So we sell that limestone to JSW Steel and after being processed for making steel we use the same limestone for producing cement.

Why you are not focusing on the northern market?

All the cement companies in the north are flying high and making Ebitda margin of above 28 per cent. Every company there is running at 80 per cent capacity utilisation. If somebody is selling their business in the North then they will obviously demand a huge premium like Binani Cement did. We cannot afford it. We have acquired limestone mines in Rajasthan, Gujarat and Chhattisgarh. We will do the IPO of over Rs 4,000 crore for setting up 5 mtpa capacity each in North and Central markets to take the overall capacity to 35 mtpa from 25 mtpa. We will then become a pan-India player then.

How do you manage time between cement, paints and managing overseas steel operations?

We are a professionally managed company. Myself and dad (Sajjan Jindal) get involved only if there is a need. I am just 2-3 years into the business, for me the biggest challenge is to build a substantial business of $4 billion in market cap. Since I took over cement as my first business venture, I spend about 70 per cent of time on it. Paint business, a start up, is taken care by a separate team. Sports is a passion and comes whenever it likes. When India closes, the US steel operations open. The beauty is we have built a strong management team which takes care of day-to-day operations.

When do you think emerging businesses will match steel?

In terms of revenue, I do not think they will, but in market cap we will definitely be there since these are consumer focused business. Steel (in equity market) trades at 7-8 times price to earnings while paint companies trade at 60 times while cement companies trade at 35-40 times. I have to make just one-sixth of profit dad makes to match their market cap. Traditionally, steel is a supply driven and India has been a net importer. In cement and paint it is consumer driven and rides on brand value. Building Asian Paints or UltraTech capacity is not that difficult, but selling these products is difficult. That is why the businesses I focus on are consumer driven. I believe, there is a good brand equity JSW has built in the system, we are trying to leverage it in new businesses. Dad will not stop expanding steel capacity but I always tell him why deploy money in a business that gives 7-8 times multiples against a business that can gives 60 times.

Do you think the steel business will go through a change with ArcelorMittal coming in?

At the end of the day, the plant is the same run by Essar Steel. They will definitely bring in new technology and R&D. We will also learn from them. We are happy that the world's largest steel company has finally come to India. We see no threat per se. The regional barriers are also being broken. We will establish our presence in east with the acquisition of Bhushan Power while Tata Steel has come to Khopoli in west with the acquisition of Bhushan Steel. Whether the competition is from Tata Steel or ArcelorMittal we are the market leaders in steel. Twenty years ago, people asked dad how you will take on Tata Steel. He showed it. Now they are asking me how you will take on UltraTech. I tell them give me 20 years, I will show. Even today, we are in Ebitda per tonne we are lower than Tata Steel due to lack of raw material linkage but we are far lower than their conversion cost.

How you are gearing up to take on ArcelorMittal?

I spoke to Aditya (Mittal, scion of Lakshmi Mittal empire) to congratulate him on their entry into India. He said in India we will learn from you (JSW Group). Imagine a company like ArcelorMittal is benchmarking us in India. Now, our benchmark is not Tata Steel anymore, but it is Posco, Nippon Steel, JFE Steel and we are looking how to catch them on cost, profitability and everything.

JSW promoter group companies has repaid Rs 3,200 crore to release pledged shares. Are you looking for fresh leverage?

Most of the money raised by promoters by pledging shares were given to build new businesses and steel. Most of these businesses are doing well. And the debt is now being repaid. We seen the environment where jittered lenders invoking pledged shares if anything goes wrong. The era of raising risk capital through pledging promoters share is over. Most promoters are looking at alternative way of fuelling growth.

Published on November 28, 2019
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