JSW Steel has had a history of acquiring stressed companies at attractive valuations and turning them around—the most recent major acquisition being that of Ispat Industries in 2010.
JSW Steel has had a history of acquiring stressed companies at attractive valuations and turning them around—the most recent major acquisition being that of Ispat Industries in 2010. The company has grown from 1.6 million tonnes company in 2002 to 18 million tonnes now, and a significant portion of that is by way of acquisitions. With five more stressed steel assets up for grabs through the insolvency proceedings, Sheshagiri Rao, joint managing director and group CFO tells FE’s Shubhra Tandon on what these acquisitions could mean for JSW Steel. Excerpts:
You have shown interest in some of the stressed steel assets on the block. What is the quality of these assets?
Will not be able to comment on the quality of these assets, but we have to look at our return on capital employed. We are number two in terms of our ROCE and we would like to maintain that position. Our ROCE is 13% at present, and it should be around that. Also, the acquisitions that we have made are not just for the purpose of acquiring or for just volumes.
You said that not submitting an expression of interest within the date does not mean you are out of the race for bidding an asset. Does that mean you are going to bid for Essar Steel?
Our strategy is to look at inorganic growth. Everybody is asking us that we have submitted EOI for X company and not for Y. But I would like to clarify that not submission of EOI, is not a limitation that a certain company is out of the competition. If somebody comes and puts in a bid before it is finalised, which is a better bid than the existing players, it could always be considered.
Bankers are not comfortable with the valuations for these assets. What is your take on valuations of these assets?
I would not be able to comment on banks comfort or discomfort. But there could be various methodologies to look at valuation. Looking at just the asset valuation without considering the future cash flows has no meaning. If somebody wants to create a 1 million tonne of steel facility, the capital required is `6,000 crore i.e the asset value, which has no meaning unless that `6,000 crore generates an EBITDA of `10,000 per tonne.
With so much of inorganic growth planned, would you be looking at any significant capital raising?
For the organic growth we have said we have a capital expenditure plan of `26,800 crore, which will be funded through debt of `15,000 crore balance by way of cash equivalents in the operations, which is more or less in place.