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Jindal vs Jindal... or Jindal plus Jindal?

Sajjan and Naveen Jindal are making similar moves in steel and power and may end up competing.

K.R. Balasubramanyamand twitter-logoAnand Adhikari | Print Edition: September 5, 2010

The Jindals of the O.P. Jindal Group aren't much different from most Indian business families. The patriarch, a farmer's son, began as a small-time bucket manufacturer in the Hisar district of Haryana. Today, the group is a $12-billion (Rs 55,200 crore) conglomerate, with steel as the flagship business.

After Jindal Senior died in a helicopter crash in March 2005, the four brothers, Prithvi, Sajjan, Ratan and Naveen, came to the fore, each with a strategy to grow his share of the ample pie. The 60-year-old matriarch, Savitri Jindal, who is the Non-Executive Chairman of the group, binds the family together. A sitting Congress MLA from Hisar who was the Minister of State for Revenue in the Haryana government until recently, Savitri is widely acknowledged as the wealthiest woman in India.

Like most business families, the four sons and their five sisters meet whenever they get an opportunity. The brothers meet at least three times a year at the family house in Hisar and at least twice in a month in Delhi, where three of them live- Sajjan lives in Mumbai. The most recent occasion when all the family members - brothers and sisters along with their spouses and children - got together was at the wedding of Sajjan's daughter Tanvi in Florence, Italy, in early June.

So, what's so special about the O.P. Jindal Group? They're clearly not headed for a split, what with each brother having the largest holding in the part of the pie he manages, with the other three having smaller but proportionate stakes in the empires of the other brothers. As Sajjan Jindal, Vice Chairman, JSW Group, points out: "We are one family, we share a good equation and support each other. Each one is an owner in each other's industry."

Example: If Sajjan has an 18 per cent stake (including nine per cent held by his mother, which Sajjan will eventually inherit) in JSW Steel, his brothers have nine per cent each in the company. Unlike, say, RPG Enterprises, where the group is a single entity with the Goenka brothers, Harsh and Sanjiv, spearheading its management, each of the Jindal brothers has carved out his own space, largely in steel-related businesses. Eldest brother Prithvi, for instance, has SAW pipes, which are used to transport oil and gas, as his flagship business. Ratan has stainless steel as his chosen area of expertise.

Now, take a glance at the activities of Sajjan and Naveen: Both have huge capacities in steel, Sajjan with 7.8 million tonnes per annum, or mtpa, and the youngest Jindal with 3 mtpa. Whilst so far Sajjan has been focused on flat steel (used to make automobiles, consumer durables, trains and ships), Naveen has been making largely long products (used to make railroads, bridges and wires).

Now for the twist: Naveen plans to make flat products even as Sajjan starts making longs. Both brothers have earmarked ambitious expansion plans. Sajjan wants to hit 32 mtpa of steel by 2020, with roughly 40 per cent of that being long steel. Ultimately, Naveen wants to get to 34 mtpa with an intention of having more than one-third of the capacity as flat products. Alongside, both brothers are on the lookout for iron ore and coal mines, to gain control over raw material.

The overlap doesn't end there. The two also have a presence in power generation - Sajjan's JSW Energy has a generation capacity of 995 MW, which he plans to increase to 11,390 MW by 2016; and Naveen's flagship Jindal Steel & Power Ltd (JSPL) will be increasing its capacity from 1,354 MW to 11,500 MW by 2020. Both brothers want to be integrated players in power, right from generation to transmission & distribution to trading.

So, what gives? Well, one way to look at it is that both brothers have aggressive plans for steel and power simply because India needs a lot of both. Another way to look at it is that both brothers would have strategically planned their expansions on the basis of geography, with the plan that each brother address the markets' needs, region-wise. But then, as far as locations for new projects are concerned, both brothers - as indeed virtually all other steel majors - are eyeing the mineral-rich states of Karnataka, Orissa, Chhattisgarh and Jharkhand. Naveen recently met Orissa Chief Minister Naveen Patnaik to discuss setting up steel and power projects in the state involving an investment of over Rs 1 trillion.

"I expect more than 90 per cent of our investments (over the next 10 years) to flow into the expansion of steel and power capacities," says Sushil Maroo, Director of JSPL. Sajjan has 90 per cent of his investments in Karnataka - including a 6.8 million tonne integrated steel plant at Vijayanagar in Bellary district, spread over a 9,000-acre campus. But he will have to look beyond Karnakata to ensure he gets more iron ore. M.V.S. Seshagiri Rao, Joint Managing Director & Group CFO of JSW Steel, says the company today has 20 per cent of the iron ore requirement for its existing 7.8 mtpa capacity.

"The idea is to go as high as 100 per cent," says Rao. For the Jindals, it appears that family harmony is one thing, and the market place dynamics quite another. Sajjan isn't fazed by the prospect of competing with his younger brother. "There is no written rule that we cannot compete. If some of our products are competing in the marketplace, it does not matter. We compete openly. There is no restriction on each other," says Sajjan.

Yet, competition may be a rather obvious fallout of two brothers spotting opportunities in two high-growth sectors. As N.K. Jain, Vice Chairman, JSW Energy, says, rather matter-of-factly: "We compete because we are in the same businesses."

Now let's look at the two brothers' plans from another angle: Combine the planned capacities of the two in power generation and you're looking at a total upwards of 20,000 MW in five years. That would propel the O.P. Jindal Group amongst the top two private sector generators in the country, with only Anil Ambani's Reliance Power ahead of it (assuming all the proposed projects materialise). Similarly, in flat and long steel, the two brothers would have a combined capacity of over 60 mtpa in 10 years - substantial enough to take on the likes of Tata Steel, Steel Authority of India, ArcelorMittal (which is finalising its India game plan) and POSCO (assuming it finally manages to make progress in the country).

The huge capacities that are required to be put up in these two sectors - about 130 GW for power and about 55 million tonnes for steel by 2020 - could also enable the brothers to divvy up the domestic market, region-wise. Jindal Power Ltd (JPL), for instance, will be expanding its thermal power capacities in states such as Jharkhand, Orissa and Chhattisgarh with a hydro-electric unit slated to come up in Arunachal Pradesh.

Sajjan's plants, via JSW Energy, will be located in Maharashtra, Rajasthan and Himachal Pradesh, besides the one already operational in Karnataka. But clearly, it is steel that runs in the veins of the Jindals, and nobody epitomises that passion more than Sajjan, who commissioned his integrated steel plant in Vijayanagar way back in 1998. At least once a month he visits the complex, using the opportunity to fly his favourite four-seater CIRRUS SR22 aircraft. Last fortnight, the JSW Group chief took another step to strengthen his steel business when he inked a deal with JFE Steel of Japan, the world's fifth-largest steel producer.

JFE will pick up a 14.99 per cent stake in JSW Steel for about Rs 5,700 crore. The money will help Sajjan bring down his debt from a level of Rs 16,000 crore. More importantly, he can now access the Japanese company's technology to make outer panels for cars - which carmakers are importing - thereby opening up a totally new market for JSW. Analysts suggest that whether the two brothers end up competing or combining forces could well be determined by market conditions. For instance, a glut of steel globally will, perhaps, compel the brothers to fight it out for market share.

However, as Ashok Jainani, Head of Research at Khandwala Securities, says: "The two groups could align if the United States's spending fuels growth and, thereby, demand for steel." The world could then be a huge market for the Jindals - huge enough for each brother to reign in regions that are poles apart.

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