Bhupesh Bhandari: The heroes from Hisar

Last Updated: Thu, Dec 30, 2010 20:51 hrs

There’s something about Hisar, the little-known Haryana town in the semi-arid plains northwest of Delhi. It has produced notable businessmen like the Jindals, Subhash Chandra of Zee and Bal Krishan Goenka of Welspun. Though all are interesting people to watch, this piece is about the Jindal brothers. Sajjan Jindal’s JSW Steel has become the largest steel maker in the country, ahead of state-owned Steel Authority of India Ltd (SAIL) and Tata Steel, with its recent purchase of Ispat Industries from the Mittals. Once the acquisition is closed, it will have production capacity of over 14 million tonnes.

Younger brother Ratan Jindal’s JSL is the country’s largest maker of stainless steel. Once his 1.5-million tonne per annum plant in Orissa goes on stream next year, he will be amongst the top 10 in the world. Youngest brother Naveen Jindal runs one of the most profitable steel companies in the country: his Jindal Steel & Power reported operating margin of 53 per cent and return on net worth of 33 per cent in 2009-10. The Boston Consulting Group had included the company in its list of the world’s top value creators between 2005 and 2009.

All the brothers have also made sizeable investments in power and are committed to spend more. The numbers are huge. But that’s a different story. Here we are concerned with steel, and the improvement in the group’s fortune — the three brothers, and their eldest brother Prithviraj Jindal, are collectively called the OP Jindal Group, though each has his own sphere of activity. About five years ago, the group’s market capitalisation was around a billion dollars; today, it stands in excess of $25 billion.

The biggest turnaround has been done perhaps by JSW Steel. Its plant in Karnataka, Jindal Vijayanagar, was dismissed as a basket case not so long ago. It had used a new technology called Corex, which is different from the conventional blast furnace and electric arc furnace routes, to make steel, and sceptics said it wouldn’t work. It even had to go for corporate debt restructuring. From there, the journey to profits and then to the top slot in the sweepstakes has been swift. Meanwhile, the company has acquired a steel mill at Houston in the United States, iron ore mines in Chile and coal mines in the US and Mozambique.

Sajjan Jindal has sold a tad below 15 per cent in the company to JFE Steel of Japan for Rs 4,800 crore. This money will be used by the company to retire some of the debt on its books, which had risen to Rs 16,000 crore. People in the group point out that Sajjan Jindal is amongst the handful of Indian businessmen, along with the Ambani brothers, Anil Agarwal and Gautam Adani, to raise as much as Rs 10,000 crore from the market in the last few years.

The partnership with JFE Steel could also help JSW Steel produce higher grades of the metal like what is used by automobile companies. There has also been some speculation that JSW Steel, in turn, will pick up a stake in JFE Steel, which is the sixth-largest steel maker in the world. Also on the cards are two integrated steel projects in West Bengal and Jharkhand, each with a capacity of 10 million tonnes per annum.

Naveen Jindal wants to double capacity to 6 million tonnes in Chhattisgarh, and wants to set up two new plants in Jharkhand and Orissa of 6 million tonnes each. The high point for him came a few years ago when he acquired the El Mutun iron ore mines in Bolivia, beating rivals like Lakshmi Niwas Mittal. The reserves of these mines stand at 40 billion tonnes — much more than the 13 billion tonnes India holds — and Naveen Jindal has the right to mine half of these over the next 40 years. He is required to invest in a 1.7-million tonnes steel plant there. He recently also acquired a steel mill in Oman, called Shadeed Iron & Steel Company, for close to $450 million.

The two brothers are likely to hunt in pairs for raw material abroad. They also have plans to place orders together for equipment. Not that doubts have not been raised on their ability to take all the projects on the drawing board to their logical conclusion. The investments lined up are huge; do they have the financial wherewithal for that? Also, there are iron ore and coal linkages that need to be secured, environmental clearances to be sought, and people to be resettled and rehabilitated. Recent experience tells us that these aren’t small challenges. Will the Jindal brothers, who employ former public sector honchos in large numbers, be able to overcome these?

In spite of the growth they have seen, some of their plans have suffered reverses. Ratan Jindal, for instance, at one time, was keen to acquire the stainless steel plant of SAIL at Salem. But the divestment went into a political tailspin and nothing came out of it. Naveen Jindal’s Jindal Steel & Power had set up a mill to make railway tracks, but has not been able to make any headway in the business: the Indian Railways continues to buy its entire stock from SAIL. It does sell rails to some companies for use in sidings, but the volumes remain small.

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