Funding by JSW Steel is at arm’s length: Jindal
JSW Paints Ltd’s managing director Parth Jindal defended a proposed ₹750 crore investment by group company JSW Steel Ltd, claiming it was an arm’s length transaction and was finalized after much deliberation.
In an interview on Monday, Jindal said the transaction was vetted by independent valuers, and the price offered is based on the aggregated market valuation.
“We were looking to raise funds and had appointed investment bank O3 Capital for the same. We received over 10 term sheets from some of the largest private equity and venture capital funds. However, after we received the non-binding term sheets, we approached JSW Steel and requested them to consider an investment as, personally, I feel it was a bit too early for us to go outside the group for funding,” said Jindal, who heads the JSW group’s unlisted cement and paints businesses.
JSW Steel last week said it will invest the amount in three tranches; ₹300 crore in the first tranche for 7.5% equity shares of the issued and paid-up equity capital of JSW Paints, and 6.88% on a fully diluted basis; followed by ₹250 crore in 2022-23, and ₹200 crore in 2023-24. Broking firm JP Morgan termed the investment decision as shocking, given that both companies are related parties and promoted by the same Jindal family. “All the pricing between JSW Steel and Paints will happen at arm’s length,” Jindal said.
JSW Paints, the newest entrant in India’s ₹54,500 crore formal paints sector, secured the investment to fuel its expansion plans.
A compelling reason for the steelmaker to fund the paint company was the technology collaboration and innovation Jindal Paints would bring to JSW Steel, along with the strong ripple effect on the consumer brands of steel, Jindal said. The firm plans to use the funds to expand operations in industrial and decorative segments, and become a pan-India player. Till last year, it was present only in the southern market. This year, it plans to reach across the country before Diwali.
The funds would be used for three functions, Jindal said. One, in coil coatings as the multinational companies in India do not have sufficient capacity to meet the growing needs of JSW Steel Coated Products Ltd (JSWSCPL), a wholly owned subsidiary of JSW Steel. “Over the last two years, we have been able to introduce more than 20 different products for JSWSCPL. Thus, funds will be used to expand JSW Paints’ capacity from 25,000-kl per annum (klpa) to 60,000 klpa. Second, we will use the funds to take the decorative capacity from 90,000 klpa to 150,000 klpa and, third, we will increase branding and marketing in decorative segment.”
India’s paints market clocked a compound annual growth rate of 11% over 2014-19. While decorative paints account for three-fourth (74%) of the market, industrial paints make up the rest. “The domestic paints sector is oligopolistic. The top three control 80-90% of the market and exhibit adequate discipline in terms of pricing and other competitive activities,” an April report on Anand Rathi Research said.