Mumbai: The Sajjan Jindal group is seeking to cut its exposure to the cement business through a stake sale in its cement-making subsidiary, a senior official of the listed holding company Jindal South West Holdings Ltd, or JSW Holdings Ltd, said in an interview.
The group’s cement firm JSW Cement Ltd is a fully-owned subsidiary of the holding company and has plans to set up 30 million tonnes (mt) of cement capacity at an initial cost of Rs3,000 crore. India’s total cement capacity is currently above 200 mt a year.
“We do not want to invest too much money in cement and are looking for a partner,” J.K. Tandon, JSW’s director (projects) said. He did not disclose the stake that will be offered to the partner.
Focused: Sajjan Jindal. JSW Cement, a company of the group he heads, says it is not keen to put ‘too much’ money into cement manufacture. Indranil Bhoumik / Mint
JSW Holdings has started the process of finding a partner. Among other group firms, JSW Steel Ltd is the operating company that owns steel plants with a capacity of 7.8 mt.
JSW Cement planned to manufacture 30 mt of cement even as the group completes its 30 mt steel expansion and builds 5,200MW of power plants over the next few years with an investment of nearly Rs40,000 crore.
However, the firm’s cement plans hit a roadblock after financial markets collapsed in September, leading to a severe credit crunch. “We found no investor appetite for new projects like ours,” Tandon, who built JSW’s first 1.8 mt steel plant at Vijaynagar, said.
“The company’s plans to build cement plants had slowed down due to our inability to raise money to fund these projects as (the) credit squeeze (happened) following the subprime crisis in the US, even as the company had placed orders for cement plant equipment with Germany’s KHD Humboldt Wedag International Ltd. The lenders, led by Industrial Development Bank of India, had sanctioned Rs1,950 crore and we were unable to raise equity.”
In 2005, JSW Holdings, which earns most of its revenues from steel, had announced plans to build aluminium plants in West Bengal, cement plants in Karnataka and Andhra Pradesh, and power plants in Maharashtra and Karnataka. The cement plants were to be built near its existing cement plants in Vijaynagar (Karnataka), West Bengal and Jharkhand, and adjacent to the coal-based power plants. The grinding units are to be built near its limestone mines in Andhra Pradesh. The total investment earmarked was nearly Rs3,000 crore.
On Monday, JSW Steel reported 55% rise in net profit to Rs340.02 crore for the quarter ended June, against Rs219.35 crore in the same period last year. Sales jumped 4% to Rs4,158 crore, from Rs3,983.79 crore in the same period. The net profit for the year ended March was Rs459 crore and gross turnover was Rs15,179 crore.
Following the economic slowdown late last year, Tandon said the firm slowed its plant construction work and has only completed about 30% of its civil construction work, worth about Rs600 crore. Mumbai-based Petron Civil Engineering Pvt. Ltd is the civil contractor and Holtec Consulting Pvt. Ltd, a subsidiary of Holcim Ltd, is providing technical advice on building cement plants. From a workforce of 1,200, only 300 workers are on site now, he said.
“We saw revival signs in May-June,” Tandon said, adding that one of the benefits of the slowdown has been the revision of project costs as the prices of cement, steel and electrical equipment have fallen. “This has saved us nearly Rs300 crore.”
The Reliance-Anil Dhirubhai Ambani Group, led by industrialist Anil Ambani, has also announced plans to build 20 mt cement capacity in India from flyash sourced from its power plants in the country. Reliance Cementation Pvt. Ltd will invest Rs10,000 crore to set up plants in India to build capacity, Ambani said at Reliance Infrastructure Ltd’s annual shareholders’ meeting in Mumbai on Tuesday.
Reliance Cementation is a subsidiary of Reliance Infrastructure.
Cement and steel companies are expanding capacity to meet anticipated demand from government spending on infrastructure projects.
The capacity additions come with a danger that there will be more supply than demand and hence pressure on profit margins. Fitch Ratings India in its January report titled Building Materials and Construction, India Special Report, had said demand and supply have been in balance with high capacity utilization over the past two years in India.
The authors—Himanshu Nayyar and Priyamvada Balaji—said the pace of capacity expansion is expected to exceed demand growth over the medium term, leading to lower capacity utilization, with the bulk of the impact being felt in calendar years 2009 and 2010 when utilization rates could potentially dip below 80%.