Jindal Steel aims to free itself from net debt; increase capacity to 27 MT
Jindal Steel and Power Ltd (JSPL), led by industrialist Naveen Jindal, is reducing its debt significantly while embarking on a new round of capital spending. It made an early repayment of Rs 2,462 crore to its term lenders in addition to loan repayments of Rs 20,000 crore over the past three years through December 2020. The company reported a debt of Rs 25,600 crore in December 2020 vis-à-vis Rs. 46,500 crore in December 2017.
JSPL plans to double its capacity at the Angul plant in Odisha to 12 million tonnes per year (MTPA) over the next three years. VR Sharma, MD, JSPL said, “We are also working to meet our 15:15:50 target of EBITDA of Rs 15,000 crore, net debt of Rs 15,000 crore. and a gross turnover of Rs 50,000 crore. ” Over the next few quarters, we intend to further strengthen the balance sheet and free ourselves from net debt in the near future, he adds.
The steelmaker’s Vision 2030 focuses on increasing the company’s capacity to 27 MTPA through clean energy resources. It will take a capex of Rs 1.20 lakh crore. Brokerage firm Prabhudas Lilladher expects a further reduction in net debt “of Rs 9,000 crore by 2022-2023 despite high spending of Rs 10,000 crore in capital spending.” Another brokerage firm, Equirus, expects the company to spend Rs 15,000-17,000 crore over the next 3-4 years to increase crude steel capacity, and also reserve part of the amount for the value-added portfolio. Planned capital spending is unlikely to derail the company’s debt plan, he added.
JSPL recently announced the divestiture of its 3,400 megawatt (MW) thermal power business to reduce debt and cut its carbon footprint by almost half. He agreed to sell 96.42% of the capital of the subsidiary Jindal Power Ltd to the promoter entity Worldone for Rs 3,015 crore.
JSPL shares have risen nearly 450% to Rs 500 in the past year. In the last fiscal year, the company recorded the highest ever production of TMT, plates, billets and wire rod. In step with production, it also had the highest TMT sales on record. The strong performance of JSPL is also due to the strong increase in exports – especially to China, the recovery in domestic demand, the push in government infrastructure, the appreciation of steel prices, the divestment of the activities of ‘Oman, among others.
Deleveraging and strengthening JSPL’s balance sheet should help the company profit from the industry’s bull cycle. World steel prices are on the rise and are expected to remain strong for a few more years, while the prices of the main raw materials of iron ore and coal are on a downward trend. Over the past fiscal year, steel prices have increased by Rs 4,000 to Rs 5,000 per tonne due to domestic and foreign demand. Expecting the current high profitability cycle to continue for some time, Indian steelmakers are embarking on a new round of investing and reducing their debts.
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