‘JSWSteel has enough headroom to expand’

As JSW Steel was included in Nifty50 on Friday, its Joint Managing Director and Group Chief Officer

SESHAGIRI RAO charted the firm’s growth plans. He told Ishita Ayan Dutt that JSW Steel was on course to achieving its capacity target of 30 million tonnes in the domestic market by 2025. Edited excerpts:

Numetalsaidincourton Thursdayitwouldmatch Arcelor’sofferandyouarean investorintheoperating company. Dothesevaluationsmakecommercialsense, giventhatsteelisacyclical industry?

Valuations depend on the synergies that the investor is looking at. If you look at Bhushan Steel, there is almost a $1-billion difference between the two bids. Can we say it’s expensive? I don’t think so, because it depends on what kind of synergies the bidder can bring in. Second is the replacement cost. These are the two main drivers pushing up the valuations.

ButEssarwouldrequire investmentgoingforward. So is~420billionareasonable valuation?

At this stage, I would not like to comment on this.

Whatistheoutlookonsteel?

Steel outlook is buoyant, both from a domestic and a global point. There is a good traction from the overall infrastructure, globally and in India. Also, demand from the automobile segment is quite strong. We expect demand growth to remain at this level.

Youhavesetatargetofachievingacapacityof30million tonnes(mt) by2025. Wehave visibilitytill23mt through organicexpansion. Howdo youplantoclosethegap?

We have 18 million tonnes (capacity). We will have 26.5 million tonnes, including Monnet, by 2021-22.

Areyouplanningtorampup capacityatVijaynagarto 18milliontonnes?

The plan is to take the capacity from 12 million tonnes to 13 million tonnes. The possibility of taking it to 18 million tonnes is there. But, we have environmental clearances for 16 million tonnes so we are getting clearances.

Isitpossibletotakethe Vijaynagarcapacityto23 milliontonnesandwouldit makeVijaynagarthelargest single-locationsteelplant?

It can go up to 23 million tonnes, subject to the availability of iron ore. Having a capacity of 18 million tonnes would make it the largest single-location plant.

Youhavelineduparound ~450billionfororganic growthandareactively pursuinginorganicoptions likeBhushanPower, areyou stretchingyourselftoothin?

Today, our debt-to-Ebitda ratio is at 2.26. We have enough flexibility to consider organic and inorganic growth options. We have been guiding a debt-to-Ebitda ratio of 3.75. Whatever we do, we will not exceed these parameters. We have enough headroom.

Haveyouzeroedinonany assetfromRBI’ssecondlist?

We will look at any niche downstream asset.

YouhavebidveryaggressivelyforBhushanPower. Whatkindofinvestmentis JSWpreparedtoundertake foritsinorganicoptions?

JSW Steel has very strong financials and substantial cash generation. The capital expenditure of ~450 billion being spent over four years starting from April 1, 2017, should also start incrementally contributing to the bottomline. If targeted acquisitions as part of inorganic growth strategy are found to be value accretive, the firm has enough strength and ability to raise resources to fund such inorganic growth plans.

Whatisthestatusofyour greenfieldplaninOdisha?

Greenfield takes some time, so we are focusing on organic growth. Second, we are looking at inorganic. Third would be greenfield.