Wednesday, February 24, 2010

Thank heavens for the power trip!

Jindal Steel & Power Ltd. has been able to comfortably manage the recession on the basis of sound strategies and its investments in the power sector, by VIRAT BAHRI

So is globalisation the road to paradise or to perdition? The events that unfolded in the past several months have provided cannon fodder for both points of view. Understandably, the prevailing economic turmoil gives companies that favour protectionism all the more reason to go further into their shells and stay away from everything that’s even remotely ‘global’.

Then there are companies like the Naveen Jindal promoted Indian steel and power behemoth Jindal Steel & Power Ltd. (JSPL), who seem to believe that the recession only strengthens the argument in favour of globalization. They go by the doctrine – nothing ventured, nothing gained. JSPL CEO Vikrant Gujaral, was in fact in Bolivia, heading the negotiations with the Bolivian government for JSPL’s $2.1 billion project proposal with regard to the El Mutun mines in Bolivia (the company plans to also set up an integrated 1.7 MT steel plant, a 6 MT sponge iron and 10 MT iron ore pellet plant), when he had an interaction with Business & Economy for this feature. The company had laid a roadmap for development of the mines and setting up of steel and pellets plants. But they had to face significant regulatory and political hurdles, wherein even Bolivian President Evo Morales had expressed his reservations earlier w.r.t. the project. Then there were also issues of royalty sharing. Finally though, JSPL’s project has been approved and a contract is expected to be signed soon. The reward for JSPL would be in the form of access to 20 billion tonnes of iron ore reserves, which would make it one of the largest players in the world.

As we mentioned earlier (refer the story on NMDC), iron ore is a thorny issue for steel players globally. In fact, most steel players were virtually sandwiched in FY 2008-09 by the double whammy of rising raw material prices on one hand and declining demand on the other. Iron ore and coking coal prices seemed to be defying recession like nobody’s business. Moreover, major markets, particularly US and Europe crashed w.r.t. demand. In this murky environment, JSPL’s numbers for FY 2008-09 look quite insane. The company posted a rise in net sales (consolidated) by 96.7% yoy to Rs.108.4 billion and the net profit jumped by 140.6% yoy to Rs.30.1 billion. It is not that the company was not impacted.

These colossal numbers can be credited, to a large part, on their power business. Jindal Power’s 1000 MW merchant power plant became operational during the year, and contributed significantly to the topline and bottomline.

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Source :
IIPM Editorial, 2009


An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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