Jindal Stainless - Plans Overseas Acquisitions

Jindal Stainless - Eyes Units In Eastern Bloc Countries

Jindal Stainless is looking to acquire steel plants and mines abroad and enter into strategic tie-ups for raw materials and finished products in the next one year, said Arvind Parakh, director (finance), Jindal Stainless. The company also plans to float its first US subsidiary in the current financial year to March for trading operations. "We are working out strategic moves [including acquisitions and strategic tie-ups] to grow ...it could be a possibility in the next 6-12 months," said Parakh, adding, "we are looking actively into a few proposals, but its too early to talk [about them]," he said. The company needs access to raw material sources for chrome ore, coal, iron ore and manganese. "Our Orissa plant will give us hot-rolled steel, what we need is CR (cold rolled) plant and raw materials," he said.

Jindal has identified South East Asia and eastern bloc nations for possible acquisitions, he said. The company acquired a cold rolling unit in Indonesia in 2004 with a capacity of 50,000 tonne per annum (tpa). The unit is currently operating slightly below capacity. It has been facing difficulties due to high raw material prices. Parakh said the Indonesian unit should be able to make a small net profit in 2006-07. "We hope to improve performance [Indonesia unit] as the first quarter was good," he said.

Jindal Stainless will invest between Rs 1,500-1,800 crore in 2006-07 as capital expenditure towards brownfield and greenfield expansion at Orissa and Haryana. Of this, Rs 400-450 crore will be spent on expanding Hisar unit to 7,20,000 tonne of hot rolled capacity from 550,000 tonne now. Expansion worth Rs 1,000 crore is expected to be complete by March 2008. The remaining Rs 1,000-1,200 crore will be invested in the company's upcoming facility at Orissa. The Orissa unit, which will house a ferro chrome unit, coke oven plant and a captive power plant will cost Rs 3,200 crore.

Ferro chrome operations have already started while the other units will be operational by December 2007, he said. The company plans to borrow around Rs 400-500 crore from the markets to fund the expansion. Last year it borrowed Rs 1,100 crore. Besides setting up the US-based subsidiary, Jindal plans to start operations at its two other subsidiaries in UK and Dubai in the next six months. The company also plans more subsidiaries in Europe, which will report to the UK unit. These lower level units are likely to be in Italy and Russia, he said.

The company currently imports nickel and metal scrap from overseas. In India, the company has secured shareholder approval to hive off its architectural and lifestyle divisions into separate companies. The process of demerger is expected to be complete in 2007. "We expect 50-100 per cent growth in these units over the next five years," said Parakh. Jindal plans to list these units on the stock exchanges in the next 3-4 years after they have reached a "critical mass".

Jindal plans to increase production of stainless steel to over 600,000 tonne in 2006-07 from 5,48,000 tonne in 2005-06. The increase in output will come from capacity expansion at Hisar, which has touched 6,00,000 tonne during the March quarter. Parakh expects the company's topline to grow 15-20 per cent in 2006-07. Growth will be driven by volumes and better realisations, he said.

Stainless steel prices have moved up 27-30 per cent since April on the back of rising input costs. Parakh expects stainless steel prices to remain firm at the current levels in the near term on strong demand. Stainless steel is currently being sold at $1,100-1,200 per tonne. Jindal, India's largest stainless steel maker, is looking to sell its products through contracts ranging up to six months compared with the practice of selling through quarterly contracts. "Quantities will be fixed and prices flexible (in the new contracts)," he said. Flexibility on the price front will be advantageous to both customers and the company, as it will allow customers to "lock in" in a rising market and benefit the seller when prices start to fall, he said.

• Has secured shareholder nod for hiving off architectural and lifestyle divisions into separate companies. Demerger expected to be complete by 2007.
• The company is planning acquisition of steel plants, mines abroad.
• Jindal Stainless plans to set up more arms in Europe, mainly in Russia & Italy.
• Expects 15-20% growth in topline owing to better realisation and strong demand.

-Business Standard