JSW strengthens its position in the East
JSW strengthens its position in the East
JSW strengthens its position in the East
When cement industry is reeling with excess capacity,
Parth Jindal, Managing Director of JSW Cement
sees an opportunity to expand.

JSW Cement plans to invest Rs 2,875 crore to nearly double its manufacturing capacity to 25 million tonnes per annum (MTPA) by the year 2023 through organic expansion. The country's ninth-largest cement maker has an installed capacity of 14 MTPA across west, south and east India.

The funds of about Rs 1,400 crore will be raised through debt while the rest will be realised through internal accruals, Parth Jindal, Managing Director of JSW Cement, informed in the recently-held press conference in Mumbai. The cement maker had earlier set a target of 20 MTPA manufacturing capacity by the year 2020, which it is likely to miss due to the ongoing demand slowdown.

"Earlier, the biggest risk for the business was not having our own clinker and being dependant on imports, for which prices can go up anytime. The company will be adding capacity at a cost of $35 per tonne against the industry average of $80 per tonne", Jindal said.

To have a de-risked raw material strategy, the company will set up a one MTPA clinker plant at Shiva Cement's premise in Odisha since it has a captive limestone mine. In fact, the company's limestone reserves were the primary reason for JSW Cement to acquire 54.4 per cent stake in it in 2017 to ensure stable clinker supply for its plants in eastern India, Jindal said.

Last month, Shiva Cement was declared as the preferred bidder for the Khatkurbahal mine blocks adjacent to its existing mine, shoring up total of limestone reserve to about 100 million tonne (MT). JSW Cement will invest Rs 800 crore in the first phase to develop a one MTPA clinker plant and a one MTPA grinding plant at Shiva Cement starting April 2020.

The delay in realising the earlier target also means that the company's plans of getting listed on the bourses have been pushed behind by 12 months, Jindal said, adding that the company now hopes to get listed by December 2021 with a valuation of about Rs 25,000 crore.

"We want to first get to 20 MTPA before we do an IPO (initial public offering), because that is the critical level at which we will have enough scale and a de-risked strategy in terms of raw material, and also we will have (sufficient) market share penetration in all the regions that we are present in," Jindal said.

Focusing on North market
"All the cement companies in the north are flying high and making EBIDTA margin of above 28 per cent. Every company 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 five MTPA capacity each in North and Central markets to take the overall capacity to 35 MTPAfrom 25 MTPA. We will then become a pan-India player then."

On buying Emami assets, he said that they are a mirror image of JSW in cement and exist in the same location where JSW operates. It will not be sensible for JSW to acquire those assets.

IPO of JSW Cement
"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 average 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 cancelledùlike it happened in Andhra Pradesh-mid-cap cement companies will be finished. But if you are big like UltraTech, Ambuja, Dalmia or Shree Cement you are well placed. If south is going through tough times, other regions will compensate. Stock market also rewards companies which are de-risked 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."

Goal of achieving 20 MTPA capacity by 2020
"The main concern was: 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 a 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 those private sectors."

Dipping cement price
Cement prices are currently at rock bottom. It went down during monsoon and has not picked up since. If anyone 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 the southern market. It dipped from Rs 280 to Rs 220 in the last six months due to the monsoon.

Cancellation of projects in AP
Delay in infrastructure projects in Andhra Pradesh has caused huge price depression in entire Southern market as companies there switch their sales. "We have five MTPA capacity in Andhra Pradesh, and we are pushing material in Telangana, Tamil Nadu, Kerala and Karnataka. This may affect prices in those regions. It is a desperate sale as everyone in Andhra Pradesh 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 to 20 a bag from then."

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.

Setting up a unit in UAE
"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 is 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 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 at Dolvi unit but from 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."

Match steel production
"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 seven to eight times price to earnings while paint companies trade at 60 times while cement companies trade at 35 to 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 seven to eight times multiples against a business that can gives 60 times."

photo caption
From L-R: Narinder Singh Kahlon, Chief Financial Officer; Parth Jindal, Managing Director; Nilesh Narwekar, Chief Executive Officer; K Swaminathan, Chief Marketing Officer.

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