The downward spiral of the commodity cycle and the crash of steel and power businesses have broken the back of many billionaires and corporate houses across the world. But the industrialist Naveen Jindal has many more reasons for his slip from the peak. The coal scam and the burgeoning debt of Jindal Steel & Power (JSPL) halted the mercurial rise, until 2012, of Jindal- the youngest son of industrialist-turned-politician OP Jindal. The profits started falling in the next two years, before sinking into losses from financial year 2015. The consolidated losses ballooned to Rs 2,540 crore in the last financial year--- compared to losses of Rs 2,000 crore in the previous year--- on a revenue of Rs 22,700 crore.
But it looks like the tide is finally turning in Jindal's favour. The share price, which fell over 90 per cent in the four years until mid-2016, has picked up steam and climbed 63 per cent in the last 25 days to Rs 262.35 (January 10 closing price) and analysts cite reasons for further uptick. Another reason behind the price rise of the shares is JSPL's capital expenditure cycle which is on the verge of completion. With the commissioning of the company's 2.5 million tonne (MT) Basic Oxygen Furnace (BOF) at Angul in Odisha, the crude steel capacity has risen to 8.6 MT. In addition, the monetisation of assets and equity raising are also on cards to reduce the debt of Rs 45,300 crore in FY2017.
IDFC analysts said in a recent report that higher volumes from enhanced capacity of JSPL along with the estimated firm steel prices and positive free cash flow will result in superior financial performance. "We expect JSPL to report consolidated net profit of Rs 880 crore in FY19 and increase it further to Rs 2,040 crore in FY20," report said. They expect the consolidated net debt to reduce to Rs 38,400 crore by FY20 from Rs 45,300 crore.
"JSPL is likely to monetise Jindal Shadeed's (Oman subsidiary) assets by listing it on the Oman exchange, thus unlocking value to shareholders," report said. On Monday, JSPL stock rose up to 13 per cent in the morning trade following reports of its plan to raise Rs 1,000 crore through qualified institutional placement (QIP) route in February. The company informed the stock exchange that it's "merely an intent" in accordance with the ongoing commitment to its bankers.
Improvement in domestic demand--- thanks to the upcoming low cost housing and rail and infra projects --- and the imposition of anti-dumping duty are the supporting factors for the company's steel business. Nearly 75 per cent of JSPL's product mix comprises long steel while the rest is hot rolled plates. At present, the domestic steel prices are at 10 per cent discount to the landed cost of imports.
Besides, Naveen Jindal and others were granted bail by a special court in September last year in a case related to the allocation of a coal block in Madhya Pradesh. In its charge sheet, the CBI has alleged that JSPL misrepresented the equipment purchase orders and misled the coal ministry. Jindal is also facing trial in a case pertaining to the allocation of Amarkonda Murgadangal coal block in Jharkhand. The CBI on Wednesday told the special court that the charge of bribery be framed against Jindal and others in the case pertaining to irregularities in the allocation of Jharkhand coal block.
The first spike of JSPL shares, which was at Rs 50, triggered in August 2007 and it rose by 340 per cent in five months. The global financial downturn had briefly pulled down JSPL's prices in 2008, however, it started picking up from November 2008 and it rose by six times to its peak of Rs 745 a share by end of 2009. The journey was peaceful until FY 2012--- when the company reported its highest profit of Rs 2,110 crore on a revenue of Rs 13,300 crore. Starting from 2012 until mid-2016, the share price slipped by over 90 per cent to Rs 50-60--- which was the 2006-level.
In 2010-11 and the previous year, Jindal was the highest paid corporate head in the country with a compensation of around Rs 70 crore. In lieu with the company's performance, his remuneration also fell down to Rs 7 crore in the last financial year.
The market now hopes of an uptick in JSPL's performance.