The JSW Group, which was among the first conglomerates last year to hold back most of its major capital expenditure and greenfield
projects due to the global financial crisis, has decided to revive two projects estimated to over INR2000 crore together, encouraged by an improvement in the overall manufacturing sector.
The Mumbai-based group will resume work on a INR1500 crore, 5Mt cement plant that it had put on the backburner after doubts were raised last year about cement consumption, after construction and infrastructure work came to a standstill. The group is also bringing on track a US$75m (about INR350 crore at current exchange rates), 3Mt iron ore project in Chile, as the pick up in manufacturing indicates a return to growth, JSW group chief financial officer Seshagiri Rao told ET.
“Funds for the cement project had been tied up last year, but we held back, as business sentiments weren’t good. Now, we think the situation has improved, and we can go ahead on the two projects,” said Mr Rao, adding that the conglomerate is also keen on its aluminium and port ventures.
As per government data released on Monday, the economy threw a pleasant surprise by growing 7.9 per cent in the quarter that ended in September, which is more than the 6.3 per cent expected earlier. Manufacturing rose 9.2 per cent, narrowing the gap with the services sector, which grew 9.3 per cent. Agricultural production, hit by a poor monsoon, rose 0.9 per cent in the July-September period.
In October last year, as the liquidity crisis erupted and doubts were raised about the demand growth for steel, cement and other commodities, the Sajjan Jindal-controlled JSW rolled back its ambitious plans that included a INR70,000 crore proposal to build two 10Mt steel plants in West Bengal and Jharkhand, a INR 1500 crore cement project in Andhra Pradesh and a US$130m, 6Mt iron ore project in Chile.
“Now, we’ve just pared down the size of the iron ore project (in Chile) to Mt, and would require only US$75m that has already been tied up with banks,” said Mr Rao.
Soon after the Chile project was conceived early this year, demand for ore fell as China — the world’s largest consumer — saw its monthly steel production fall to 34Mt from 46Mt. So prices of iron ore crashed. The demand for steel has now revived in China, with record monthly production of about 52Mt. The group has also tied up a long-term contract supplies in the range of US$60-61/t.
The group is also working hard on the cement operations. JSW, last year, surprised the cement industry with its plans to build a 5-mt cement capacity through two plants in Nandyal (Andhra Pradesh) and Vijaynagar (Karnataka). The Nandyal facility would have a clinker plant, while Vijaynagar would be a grinding unit. JSW’s cement operations would be through slag — a waste material from steelmaking operations.
The revival proposal is clearly backed by increased activity in the manufacturing sector, said an industry observer. “For the past couple of months, inventory levels are coming down in the discrete and hybrid sections of the manufacturing space,” said manufacturing consulting firm ARC Advisory’s research head SR Venkatapathy. “When the work contracts in specialised sectors such as packaging machinery, textile machinery, paper machinery, auto machinery are on the rise, it leads to a growth in steel, cement and plastics industries,” he added.
Discrete includes auto, electronic contract manufacturers, while hybrid implies the food and beverages sector.