Bolstered by rising demand in the country, JSW Steel has decided to increase its overall production capacity to 30 million tonnes by 2020, multiplying from the current level of 3.8 million tonnes, aiming to use cash flows from a shorter expansion plan expected to be completed in three years to fund a larger growth scheme.
The company plans to set up greenfield projects of 10 million tonnes each in West Bengal and Jharkhand by 2020 and boost the capacity of its existing plant at Vijaynagar in Karnataka to 10 million tonnes by 2010, said Sajjan Jindal, vice-chairman and managing director of JSW.
JSW has also made a small acquisition in the United Kingdom. It has acquired the UK-based Argent Independent Steel Ltd at an enterprise value of 3.7 million pounds (about Rs 31 crore). The acquired company has debt of around 2.1 million pounds. The annual steel processing capacity of the company is 1.5 lakh tonnes.
"The company is not looking at acquiring major assets outside India as the domestic market offers tremendous opportunities," Jindal told Hindustan Times.
The company has already started the first phase of its expansion to increase its capacity to 6.8 million tonnes in Vijaynagar, entailing a total capital expenditure of Rs 5,300 crore, to be completed by 2009.
Simultaneously, the company has decided to add another 3.2 million tonnes of capacity at the same place. In addition, it is setting up a cold-rolling plant with a capacity of one million tonnes and a separate hot strip plant of a comparable size.
The total capital expenditure involved in this expansion including the cost of setting up a blast furnace will be around Rs 17,000 crore, said JSW's finance director Seshagiri Rao. This will be funded though the combination of debt and internal accruals.
The company has already tied up debt of Rs 5,000 crore, while tranches adding up to Rs 5,000 crore will be raised as long-term loans, Rao said. The remaining Rs 7,000 crore will be funded through internal accruals over the next four years, he added.
Jindal said the company had applied to the West Bengal and Jharkhand governments for leases to mine iron ore. "We are expecting to get the mining lease in the next 6 to 8 months. Once the mining lease rights are given, we will firm up our financial plan to fund these projecs," Jindal said.
These two units will come up in phases with 3 million tonnes to be added every three years. "After 2010, we will have capacity of 10 million tones, which will generate enough cash to fund the further expansion," Jindal said.
The company reported a marginal increase in profit after tax (PAT) at Rs 413.25 crore for the quarter ended March 31, as compared to Rs 410.68 crore for the same quarter last year. Total income (net of excise) increased 30.76 per cent to Rs 2,579.27 crore for the fourth quarter ended March 31, from Rs 1,972.43 crore in the corresponding quarter a year ago.
For the year ended March 31, the company posted a profit after tax of Rs 1,292 crore as compared to Rs 856.53 crore for 2005/06 while total income (net of excise) increased to Rs 8,699.59 crore from Rs 6,598.49 crore.
The group recorded a profit after tax after share of profit from associates of Rs 1,303.89 crore for the year ended March 31, while the total income (net of excise) was Rs 8699.59 crore.