'Want To Become Pan India Cement Player,' Says JSW Cement MD Parth Jindal As IPO Subscription Begins

Summary

In this interview, Pat, the Managing Director of JSW Cement, discusses the company's upcoming IPO, its plans for expansion, and the strategic use of raised funds. The IPO aims to raise ₹3,600 crores, with a portion for debt repayment and the rest to fuel growth, particularly in the northern markets. Pat highlights the company’s competitive edge, driven by synergies with the JSW Group, and its bullish outlook despite market challenges. He also addresses concerns about competition, pricing volatility, and future growth, emphasizing the company's focus on organic expansion rather than acquisitions in the cement industry.

Takeaways

• 😀 JSW Cement's IPO, opening on the 7th and closing on the 11th, will raise ₹3,600 crores, with ₹2,000 crores being an offer for sale and ₹1,600 crores being infused into the business.
• 😀 The raised funds will be used for debt repayment (₹520 crores), building a new unit in North India (₹800 crores), and general corporate purposes.
• 😀 The IPO aims to help JSW Cement expand into the North Indian market and grow from 20 million tons of production to 42 million tons in the next 3-5 years.
• 😀 Investors who entered in 2021 at a lower valuation will partially exit, but they will retain a 7% stake in the company post-IPO.
• 😀 Despite the highly competitive environment, JSW Cement sees strategic advantages in being fully backward integrated with synergies from JSW Group companies.
• 😀 The cement industry faces strong competition from players like UltraTech, Adani, Dalmia, and others, but JSW Cement’s cost advantages and synergies with JSW Steel help it stand out.
• 😀 JSW Cement plans to expand its presence in the North and Central regions of India to reduce sensitivity to regional price and volume fluctuations.
• 😀 The company has a market share of 84% in Ground Granulated Blast Furnace Slag (GGBS) and plans to focus on conventional cement for Northern markets while maintaining dominance in GGBS in existing markets.
• 😀 The company expects 6-7% growth in overall cement demand in India, with volume growth improving after a slow 2024 due to political uncertainties.
• 😀 JSW Cement's expansion plans will be funded through a mix of internal accruals and debt, and they aim to maintain a net debt-to-EBITDA ratio of around 2.5 times in the medium term.
• 😀 The company is focused on organic growth, with no immediate plans for acquisitions, despite the broader JSW Group's aggressive acquisition strategy in other sectors.

Q & A

What is the primary purpose of JSW Cement's upcoming IPO?

The primary purpose of the IPO is to raise funds for expanding JSW Cement's presence in the North Indian market and to become a pan-India cement player. Additionally, the company aims to increase its production capacity from 20 million tons to 42 million tons over the next 3 to 5 years.

How much money is JSW Cement aiming to raise through this IPO and how is it divided?

JSW Cement is raising ₹3,600 crores through the IPO. ₹2,000 crores will be through an offer for sale by private equity investors and the State Bank of India, while ₹1,600 crores will be infused into the business, with portions allocated for debt repayment, expanding operations, and general corporate purposes.

What percentage of the company will the private equity investors exit after the IPO?

The private equity investors, who invested ₹1,600 crores in 2021 for an 18-19% stake, will be partially exiting through the IPO. After the IPO, they will retain about 7% of the company.

What strategic advantages does JSW Cement have over its competitors in the market?

JSW Cement has several strategic advantages, including being fully backward integrated, using waste products like slag and fly ash from the steel and thermal power industries as raw materials. Additionally, they benefit from synergies with JSW infrastructure for logistics and distribution, and the JSW group’s brand power, allowing them to lower raw material costs and manufacturing expenses.

Why is the company focusing on expanding into the northern and central markets?

JSW Cement is expanding into the northern and central markets to diversify its geographic presence and hedge against the volatility in any single region. By doing so, the company can balance performance across different areas, mitigating risks like price depreciation or regional competition.

What challenges does JSW Cement face as it looks to expand in the northern markets?

The primary challenge is the intense competition from established players like UltraTech, Adani, Dalmia, and others. These companies have strong market positions, no debt on their books, and significant expansion plans. JSW Cement, however, leverages its group synergies and cost advantages to compete.

How does the company plan to maintain financial health while expanding rapidly?

JSW Cement plans to finance its expansion through a mix of internal accruals, IPO funds, and debt. Their goal is to keep net debt to EBITDA at around 2.5 times, ensuring financial stability while pursuing aggressive growth.

What is the company's stance on acquisitions in the cement sector?

JSW Cement is focusing on organic growth for the medium term, particularly expanding from 20.6 million tons to 42 million tons. While the JSW group is aggressive in acquisitions, JSW Cement itself does not see attractive acquisition opportunities in the sector right now, particularly due to the high valuations of potential targets.

How does JSW Cement’s market strategy for GGBS (Ground Granulated Blast Furnace Slag) differ in northern markets?

JSW Cement has no plans to introduce GGBS in northern or central India, as there are no steel plants in these regions to provide the raw materials required. In these markets, they will focus on conventional cement strategies, while continuing to lead the GGBS market in the existing geographies (south, west, and east).

How does the company view the current market conditions for cement pricing and volume growth?

JSW Cement expects a positive outlook for cement pricing and volume growth in the coming year. Despite challenges in FY25, where volumes grew only 1%, the company anticipates a 6-7% overall growth in the cement industry this year, driven by strong government infrastructure spending and favorable monsoon conditions.