Jindal Stainless (JSL), India’s largest stainless steel manufacturer, has acquired a 49% stake in Indonesia-based nickel pig iron (NPI) company New Yaking Pte for about $157 million. The move is strategic for JSL as it aims to secure long-term access to nickel, a crucial raw material for the stainless steel industry.
The all-cash deal will be funded entirely through internal accruals. Under the deal, the companies will set up a joint venture firm for manufacturing of NPI in Indonesia, while the deal offers benefits of backward integration to the Indian firm, JSL MD Abhyuday Jindal told FE in an interaction.
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The companies will set up a NPI smelter with 2 Rotary Kiln Electric Furnace (RKEF) lines.
“India has insufficient reserves of nickel ore, and hence it has to be imported. Nickel constitutes about 50% of our input costs, and it is also a volatile commodity. There is a shortage of nickel in the country and for our 2.9 million tonne capacity of stainless steel production, we require 125 kilo tonne of nickel per year, of which about 15-16% is sourced through the NPI route,” Jindal said.
“So, this deal will almost fully secure our NPI requirement and will give us the first right of refusal from the Indonesian plant. This is going to be a greenfield setup and we expect the project to be commissioned by end of FY25. The investment from JSL side for the JV firm will be about ₹1,200-1,300 crore with a cash outflow in the next two years, so about ₹700-750 crore in FY24 and ₹500-550 crore in FY25,” he said, adding, this acquisition will usher in a sharper competitive advantage to JSL in Indian and global markets.
Under the agreement with New Yaking, JSL will invest in development, construction and operation of a greenfield NPI smelter facility at an industrial park in Halmahera Islands, Indonesia. The facility, with an annual production capacity of up to 200,000 metric tonne of NPI with average 14% nickel content, is expected to be commissioned within two years.
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At present, JSL meets its supply of NPI (15-16%) and the remaining through stainless steel scrap.
JSL has benchmarked an Internal Rate of Return at about 25% and expects breakeven in four years from the start date.
On plans to acquire similar facilities, Jindal said that this is the first time any Indian company and JSL had made this kind of an investment. “We see how this plays out before looking at similar investments.”