Jindal Strips Ltd (JSL) is an existing profit-making, dividend-paying company engaged in manufacturing steel strips, sheets, sponge iron, ferro chrome, steel ingots, industrial machinery and power generation. JSL was the flagship company of the Jindal Organization, promoted by late O. P. Jindal and associates in 1970 for setting up a plant for the manufacture of HR Steel Strips at Hisar in Haryana. The company, which started operations with a single plant at Hisar, has over the years grown into a well-diversified multi-locational company with plants at Hisar (Haryana), Vasind (Maharashtra) and Raipur and Raigarh (Madhya Pradesh). The group company, Jindal Ferro Chrome Ltd, having its plant at Vizag (AP), was merged with JSL with effect from 1 April 1995. JSL was at one time the largest private-sector manufacturer of stainless steel and CR steel strips in the country, catering to approximately 38 per cent market share of the Indian stainless steel market.
JSL has a strong technical team and has mostly relied on in-house technical expertise for its expansion, diversification and new projects. As a result, the company has been constantly upgrading its plant and setting up projects at a much lower capital cost as compared with its competitors and is today among the leading stainless steel producers of the country.
At Hisar, the company has the country’s only fully integrated and indigenous stainless steel plant. The company uses state-of-the-art Argon Oxygen Decarburization (AOD) technology developed in-house, which led to improved quality of stainless steel. In March 1997, the unit increased its production capacity from 100,000 to 250,000 tonnes per annum. The unit also undertook a modernization programme for its Steel Melting Shop and Steckel Mill.
In 1990, the company set up a 500,000 tonnes capacity sponge iron unit in Raigarh, which is India’s largest coal-based sponge iron unit and fully developed by the engineers of Jindal. This forms a supply base for the raw materials for the manufacture of steel. The unit also has captive 81.70 MW (effective capacity of 64 MW) power-generating capacity, which has made it self- reliant in the power front and consequently helped in reducing the power bill substantially. Further, the company embarked on an increase in captive power capacity by another 25 MW with assistance from UBI, which has been fully commissioned. The unit also supplies excess power to MPSEB. Other than this, the company also has a 15 MW submerged arc furnace with a capacity to manufacture 30,000 tpa of ferro chrome, two 50 tonne electric arc furnaces each of 180,000 tpa capacity to manufacture mild steel slabs and a coal washery with a capacity of 200 MT per hour.
The ferro alloy unit at Kothavalasa near Visakhapatnam has expanded its production capacity from 40,000 MT to 60,000 MT of ferro chrome, an essential ingredient in the manufacture of stainless steel, which till recently was mostly imported. This has led to self-sufficiency and also opened the export market for the company.
JSL’s Vasind unit in Maharashtra was the first among the private sector to master the technology of manufacturing quality cold rolled coils and strips of Deep Drawing (DD) and Extra Deep Drawing (EDD) grade.
The company has ISO 9002 certifications for its plants at Hisar, Raigarh and Vasind. The Hisar and Vizag units were managed by Rattan Jindal. The sponge iron division, power unit at Raigarh and the machinery division at Raipur were under the control of Navin Jindal. The Vasind unit, which was within the premises of Jindal Iron & Steel Co Ltd, was managed by Sajjan Jindal.
The company had undertaken an arrangement by restructuring the company in three entities, namely, Jindal Strips Ltd (JSL) with the Hisar and Vizag units, Jindal Steel and Power Ltd (JSPL) with the Raigarh and Raipur units, whereas the Vasind unit would be hived off to Jindal Iron & Steel Co Ltd. The company has approached the Hon’ble High Courts of Punjab and Haryana and Mumbai for approving the scheme of restructuring. The involved institutions have agreed, in principle, to the restructuring scheme. The purpose of restructuring was to benefit the three new entities to have a focused approach in their existing activities and consolidate their operations further. This would also enable them to join the world leaders in the respective spheres at a future date and have meaningful collaborations.
The associate/group companies of JSL are Jindal Iron & Steel Co. Ltd, Saw Pipes Ltd, Jindal Vijaynagar Steel Ltd, Jindal Tractebel Power Co. Ltd and Jindal Praxair Oxygen Co. Ltd Line of activity.
The capital structure of the company as on 31 March 1998 was as follows (Table 12.16): Authorized capital: ` 6,000 lakhs
Issued, subscribed and paid up: ` 3,152.72 lakhs
The equity share capital of JSL amonting to ` 3,152.72 lakhs as on 31 August 1998 was held by the following:
The shares of the company are listed in the stock exchanges of Delhi, Bombay and NSE, and the present quoting is ` 46/- in NSE with the last 52 weeks high and low of ` 97/- and ` 39/-, respectively. The equity share capital of JSL would be split in the ratio of 3:2 between JSL and JSPL subsequent to the restructuring of the activities in different companies as mentioned earlier. The shareholding pattern, on completion of the exercise, would remain unaltered.
Position Financial and Result Working Past
Profitability analysis for four years (1995–96 and 1998–99 six months ended) is given in Table 12.17. Financial position and past profitability for the company are given in Tables 12.18 and 12.19. Balance sheet analysis may be seen in Table 12.20.
The total income of the company decreased in 1996–97 on account of the modernization-cumupgradation scheme undertaken by JSL on the steckel mill in the Hisar Division, due to which the mill was partly shut down during 1996–97. The total income of JSL increased in 1997–98 with the commissioning of the expansion schemes.
The PBILD declined in 1996–97 in line with the decline in total income, but the margins remained at a level of about 22 per cent during the period under review. The operating profits moved in line with PBILD. During 1996–97, the operating profits decreased due to a decrease in PBILD and an increase in interest burden.
Overall, the performance of the company is considered satisfactory with regard to general recessionary trends in the steel industry at that point of time.
The equity share capital increased to ` 31 crores in 1995–96 on account of the amalgamation of Jindal Ferro Alloys Ltd (JFAL) with JSL. The share exchange ratio for the amalgamation was 45 shares of JSL for every 100 shares of JFAL.
As on 31 March 1998, JSL had investments aggregating to ` 245 crores, which comprised ` 162 crores in investment companies (of which ` 74 crores invested in JVSL), ` 78 crores in quoted equity (` 33 crores in JISCO and ` 38 crores in JVSL), ` 1.10 crores in unquoted preference shares, ` l.83 crores in quoted bonds/debentures and ` 2.62 crores in other unquoted investments.
In 1993–94, JSL made a Euro issue of 4.25 per cent convertible bonds of $60 million. The bondholders had an option to convert the bonds just mentioned into an equity share of the company at a price of ` 352 per share. The offer was valid till 28 February 1997. Further, the bondholders had put an option to redeem the bonds at any time after 31 March 1997. As of 31 March 1995, ` 29.6 crores was converted into equity capital at a premium of ` 342 per share. Out of the balance amount aggregating to $50.5 million, which remained outstanding after the conversion, redemption option was exercised by the Euro bondholders, whereby bonds to the extent of $32 million (` 115 crores) were redeemed. The remaining amount of $18.5 million (` 71.9 crores) was outstanding as debt and was scheduled to be retired on 31 March 1999.
As of 31 March 1998, secured loans of the company were mainly constituted of debentures amounting to ` 340.07 crores (previous year—` 391.47 crores) and term loans from various AIFIs including IIBI of ` 378.07 crores (` 264.69 crores). Unsecured loans included Euro convertible bonds (` 71.93 crores), privately placed NCDs with Amex Bank (` 21.33 crores), foreign currency loan from Barclays Bank PLC (` 27.91 crores), unsecured loan of ` 20 crores from IIBI, CPs (` 10 crores), fixed deposits (` 15.68 crores), short-term loans from FIs/banks (` 15 crores), security deposits (` 73.20 crores), inter-corporate loans (` 7.1 crores), SICOM incentive loans (` 0.13 crores) and loans under sales tax deferred scheme (` 8.31 crores).
The loans and advances of ` 212.22 crores as on 31 March 1998 included loans extended to group companies at ROI of 15 per cent per annum and ICDs of ` 41.28 crores to GE Capital Services Ltd. The ICDs were since received by the company during the current year. The net worth of the company as on 31 March 1998 was satisfactory at ` 656.74 crores.
Projected growth in net sales at 6.35 per cent in 1997–98 was quite conservative in comparison to average growth of over 25 per cent in the last two years, which, however, was on account of implementation of projects in both sponge iron and power. This is considered quite feasible, as the company had commissioned a new TG set of 25 MW with the financial assistance. The growth in sales during 1999–2000 was estimated at 10.91 per cent due to higher utilization in the mild steel slab plant and power plant. The increase in gross profits, in both absolute terms and percentagewise, was mainly due to higher utilization in the steel slab and power plants.
Basic Information on the Company as on 31 March 1998
i. name of the company: Jindal Strips Limited (JSL)
ii. constitution: Public Limited Company
iii. sector: Private
iv. registered office: Post Box No.6, Delhi Road, Hisar–125 005, Haryana
v. factories: Hisar (Haryana), Vasind (Maharashtra), Raigarh (M.P.), Raipur (M.P.) and
Visakhapatnam (A.P.)
vi. year of incorporation: 1970
vii. line of activities: Manufacture of HR and CR strips, sheets and rounds, ferro chrome, sponge iron and MS ingots
viii. installed capacity: As on 31 March 1998
1. Compute the different profit margins for the company between 1995 and 1998. Analyse their trends. Identify the key areas that need to be focused on for improvement in profit margins.
2. Critically comment on the projected profit and loss account of the company by examining the assumptions made.
3. Comment on the restructuring plan of the company. Will it yield favourable results in future? Justify your answer.
4. Compute different ratios and compare them with industry averages.
5. How is the cash flow position of the company? Comment after working out the cash flow for the year 1997–98.