Companies
JSW Group explores expansion into copper, aluminium, has engaged consultants, says top executive
Summary
- While the plans are at an early stage, the company has engaged consultants to explore the financial viability of such an expansion, according to chief executive Jayant Acharya. JSW Steel's falling margins due to a surge in imports may hurt the company's ability to commit capex, he warned.
The JSW Group, which has the largest steelmaking capacity in India, is exploring entry into making other metals, including copper and aluminium, JSW Steel chief executive officer Jayant Acharya said.
The steel-to-auto conglomerate has already engaged consultants to explore the financial feasibility of such an expansion, said Acharya, who is also the company's joint MD. The plans are in the early stages and no decision has been made, he clarified.
"As of now, we have not taken any call on which metal to do or not to do, but we are open to looking at alternate metals," he told Mint during an interview at JSW Group’s expansive headquarters at Mumbai’s Bandra Kurla Complex. “We are looking at it, but it’s too early to comment. It may be (through) a different entity, it may not be JSW Steel."
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The growing trend of electrification has increased the demand prospects for several metals, including copper and aluminium, making a case for the conglomerate to look at avenues for diversification, he said.
JSW Steel, along with Aditya Birla Group’s Hindalco, was in contention to acquire two copper mines in Jharkhand owned by public sector firm Hindustan Copper, PTI reported in October citing unnamed sources.
Acharya reiterated the challenge that Indian steelmakers are facing due to a surge of cheap-priced imports into India and its impact on the steelmakers’ margins.
“The challenge is that the way the margins are getting compressed, the ability to fund is going down. Capex will get moderated, and it will take more time to do any of this (expansion into other metals)," he said.
Capex cuts
Sajjan Jindal-led JSW Steel has already pruned its capital expenditure (capex) plans for FY25 from ₹20,000 crore to ₹16,000-17,000 crore as it transferred a 300-kilometre slurry pipeline project to listed group firm JSW Infrastructure and pushed the construction of a third blast furnace at its Vijayanagar mill to FY26.
If there is no respite from imports, the company may defer other capex plans too, he said.
“If you don't have a visibility on the policy, then why would your shareholders allow you to spend thousands of crores hoping that the Chinese will not come or the FTA countries will not come here," Acharya said. “So, we are now cutting capex, because margins are not enough to do capex anymore."
FTA stands for free-trade agreements, under which many countries like Asean members sell steel to India without attracting any customs duties.
The rising imports have forced Indian steelmakers to drop prices to unsustainable levels, he said, adding that JSW Steel’s Ebitda margins have dropped from around ₹12,500 per tonne levels in FY24 to around ₹9,500 per tonne this fiscal.
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Earlier this month, Union Minister of Commerce and Industry Piyush Goyal, Union Steel Minister HD Kumaraswamy and executives of leading steel mills met in New Delhi. At the meeting, the steel ministry proposed a 25% safeguard duty on steel imports, PTI reported citing unnamed sources.
India's steel imports in the first half of FY25 were about 5.1 million tonnes, 54% higher than the same period last year, as per data from BigMint, a market intelligence firm. During this period, China overtook South Korea to become the leading steel exporter to India, accounting for nearly half of the total steel imports.
Overseas ambition
Despite the margin pressure in recent quarters, JSW Steel is bullish about India’s growth story, Acharya said. The company is planning to reach 50 million tonnes of annual steelmaking capacity by the end of this decade, up from about 28 million tonnes presently. The company is on track to reach just over 34 million tonnes per annum (MTPA) capacity by the end of this fiscal and just over 42 MTPA by the end of FY28.
While the company is bullish on growth in India, it has tempered its overseas growth ambitions as the world moves away from globalization. JSW Steel has a unit in Italy and two sites in the US. The plants were established with the intention of supplying raw steel from India and then processing it further in the western countries for higher margins.
However, with countries bringing in protectionist policies and thus making steel imports uncompetitive, JSW’s overseas steel units have been haemorrhaging capital.
Acharya said that presently, the company will not be investing more capital in either Italy or the US, but it also has no plans of divesting from the assets.
India’s growth story
Despite being the world’s second largest consumer of steel, India’s per capita steel consumption at 98 kg annually was significantly lower than the global average of 233 kg, analysts at ICICI Direct noted in a report in late October. The Indian government’s push for infrastructure development could boost per capita steel consumption to 160 kg by FY31, giving a lot of headroom for growth for Indian steelmakers, they said.
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“With a strategic capacity expansion in place, favourable domestic steel demand and improvement in profitability, JSW Steel is positioned to achieve record performance going forward," the ICICI Direct analysts said, recommending investors to increase their positions in the stock with a target price of ₹1,130.
Analysts at BobCaps had a more measured view on the stock, recommending investors hold on to their positions with a target price of ₹975. The company was more vulnerable to change in a commodity cycle than its peers given its higher target net debt to Ebitda ratio of 3x and a higher threshold of 3.75x.
