Industrialist Naveen Jindal-led Jindal Steel and Power Ltd (JSPL) is in the process of drastically cutting down its debt while going for a new capital expenditure cycle. It has made a prepayment of Rs 2,462 crore to its term lenders in addition to the loan repayments of Rs 20,000 crore in the last three years until December 2020. The company reported a debt of Rs 25,600 crore in December 2020 vis-a-vis Rs 46,500 crore in December 2017.
JSPL plans to double its capacity at Angul plant in Odisha to 12 million tonne per annum (MTPA) in the next three years. VR Sharma, MD, JSPL says, "We are also working to achieve our 15:15:50 target, that is, Rs 15,000 crore EBITDA, Rs 15,000 crore net debt and Rs 50,000 crore gross turnover." In the coming quarters we intend to further strengthen the balance sheet and become net debt free in the near future, he adds.
The steelmaker's Vision 2030 focuses on increasing the capacity of the company to 27 MTPA through clean energy resources. It will require a capex of Rs 1.20 lakh crore. Brokerage Prabhudas Lilladher expects a further reduction of net debt "by Rs 9,000 crore by 2022-23 despite high spend of Rs 10,000 crore on capex." Another brokerage Equirus expects the company to spend Rs 15,000-Rs17,000 crore over the next 3-4 years to raise crude steel capacity, and also reserve a part of the amount for the value-added portfolio. The planned capex is unlikely to derail the company's deleveraging plan, it added.
JSPL has recently announced divestment of its 3,400 mega watt (MW) thermal power business to reduce debt as well as to cut down its carbon footprint by almost half. It has agreed to sell 96.42 per cent stake in the subsidiary Jindal Power Ltd to the promoter entity Worldone for Rs 3,015 crore.
JSPL shares rallied nearly 450 per cent to Rs 500 in the last one year. During the last financial year, the company recorded the highest-ever production of TMTs, platers, billets and wire rods. In tune with the production, it also clocked the highest ever sales of TMTs. JSPL's strong performance is also due to surge in exports -- especially China-bound, recovery in domestic demand, government's infrastructure push, appreciation of steel prices, divestment of Oman business, among others.
The deleveraging and strengthening of JSPL's balance sheet is expected to help the company to cash in on the industry's upward cycle. Global steel prices are rising and expected to remain buoyant for another couple of years, whereas, prices of key raw materials of iron ore and coal are witnessing a down trend. In the last financial year, steel prices have increased by Rs 4,000-5,000 per tonne thanks to domestic as well as the overseas demand. Expecting the current high profitability cycle to continue for sometime, the Indian steelmakers are embarking on a new capex cycle and reducing its debts.