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Jindal Vijaynagar Steel, Mangalore Refinery and Petrochemicals, Kesoram Industries

JINDAL VIJAYNAGAR STEEL Sustained Growth Jindal Vijaynagar Steel (JVSL), an O P Jindal group company, is the third largest integrated steel manufacturer in India after Steel Authority of India (SAIL) and Tata Iron and Steel Company (TISCO). JVSL manufacturers and sells hot rolled (HR) coils, crude steel, pellets, galvanised sheets/coils, etc.

Companias

JINDAL VIJAYNAGAR STEEL

Sustained Growth

J
indal Vijaynagar Steel (JVSL), an O P Jindal group company, is the third largest integrated steel manufacturer in India after Steel Authority of India (SAIL) and Tata Iron and Steel Company (TISCO). JVSL manufacturers and sells hot rolled (HR) coils, crude steel, pellets, galvanised sheets/coils, etc.

During 2004-05, JVSL witnessed robust financial performance. Its net sales recorded a substantial growth of 104 per cent over 2003-04 to reach Rs 6,679 crore while net profit surged 64 per cent to Rs 870 crore. The total forex earnings accounted for around 43 per cent of the net sales generated largely from sale of pellets, slabs, HR coils and galvanised products. Out of the total sales revenue, HR coils accounted for 44 per cent, galvanised products contributed 38 per cent, other products 10 per cent, pellets 6 per cent and cold rolled (CR) coils 2 per cent.

The same year JVSL undertook various modernisation projects. It expanded the pellet plant capacity from 3 million tonnes per annum (mtpa) to 4.2 mtpa. The company commissioned a new galvanising line with a capacity of 35,000 tpa for manufacturing ultra-thin gauge galvanised line products at Tarapur. JVSL commissioned a blast furnace plant with an installed capacity of 0.9 mtpa under an Operations and Maintenance (O&M) agreement with Euro Ikon Iron and Steel.

In May 2005, JVSL merged three private companies, namely, Euro Ikon Iron and Steel, Euro Coke and Energy and JSW Power. The company acquired assets of Rs 1,020 crore by this merger. Last September, JVSL changed its name to JSW Steel. JSW is currently in the process of merging Jindal Iron and Steel Company and Jindal South West Holdings with itself.

In the current year, JSW has signed a contract with Siemens VAI (Voest-Alpine Industrieanlagenbau) Austria, for setting up India’s largest blast furnace plant with a capacity of 2.8 mtpa at the company’s Vijaynagar factory in Karnataka. The company has plans of expanding its steel making capacity to 3.8 mtpa by March 2006 and 7 mtpa by 2008 from its existing capacity of 2.5 mtpa. The Jharkhand government and JSW have signed a MoU worth Rs 35,000 crore for setting up a steel plant in the state, near Hesalong in Saraikela Kharsawan district near the iron-ore producing regions in Jharkhand. The plant expects to commence operations by 2012 and would generate employment to around 40,000 people. The proposed plant will be built in two phases and will also generate 800 megawatt of thermal power.

JSW plans to raise $ 200 million through an overseas loan issue to finance the company’s expansion plans in Karnataka. The annual plant capacity in Karnataka will be raised to 7 mtpa at an estimated cost of Rs 50 billion. Of the Rs 50 billion requirement, the company will raise Rs 30 billion via domestic loans and the remainder through an overseas loan.

In January 2006, JSW announced a hike in the price of galvanised steel by Rs 1,000 per tonne. This is due to further increase in the input cost, primarily, of zinc, in the international market. The company last increased the price of galvanised steel in October 2005 by Rs 500 per tonne.

During April-December 2005, JSW reported a rise of 2 per cent in net sales over the same period a year ago to Rs 4,596 crore. However, net profit has suffered by 4 per cent to Rs 445 crore owing to increase in the cost of raw materials and other expenditure.

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MANGALORE REFINERY AND PETROCHEMICALS

Ambitious Plans

M
angalore Refinery and Petrochemicals (MRPL), a refining subsidiary of ONGC, is the first refinery in India to produce Euro III high-speed diesel and Euro III motor spirit (petrol).

In 2004-05, MRPL achieved remarkable financial performance. The entire accumulated losses of Rs 1,184 crore as on March 31, 2003 when ONGC acquired management control of MRPL, were wiped out in just two years. The company’s net sales recorded a significant growth of 62 per cent over 2003-04 to Rs 18,508 crore and net profit galloped by 92 per cent to Rs 879 crore. The same period it processed

11.85 million metric tonnes (mmt) crude oil, up 18 per cent over 2003-04. The company produced 11.07 mmt of finished products, an increase of 18 per cent and despatched 11.06 mmt of finished products as against 9.24 mmt. The company’s export earnings rose 38 per cent to Rs 6,191 crore over the same period the previous year.

MRPL has undertaken several expansion plans. It intends to expand the capacity of the Mangalore refinery from the existing 9.69 million metric tonnes per annum (mmtpa) to 15 mmtpa. The project is expected to be completed in three and a half years, and will make the company one of the largest PSU refineries in the country with investments concentrated at a single location. The estimated production of propylene from the upgraded refinery complex will be 3,00,000 tonnes per annum. MRPL has also planned a new integrated refinery-cum-petrochemicals complex with crude refining capacity of 15 mtpa in the special economic zone at Mangalore at an estimated cost of Rs 25,000 crore. The project envisages production of high value products like propylene, Euro III/Euro IV compliant gasoline and diesel which are in good demand in international markets. In addition, the company has planned to set up a new refinery of 5 mtpa at Kakinada in Andhra Pradesh in a joint venture with IL&FS and Andhra Pradesh Industrial Development Corporation, a 7.5 mtpa refinery is planned at Barmet, Rajasthan in a joint venture with Cairn Energy at a total cost of Rs 15,000 crore.

The central government has allowed MRPL and Reliance Industries (RIL) to sell kerosene in the open market directly to consumers. At present, public sector oil companies are selling subsidised kerosene through the public distribution system. Before this, MRPL had been allowed to sell petrol and diesel in the retail market as well as kerosene and liquefied petroleum gas to bulk consumers. With this move, MRPL will now be able to supply kerosene at the retail level.

For the nine months ending December 2005, MRPL has suffered in profitability. Its net sales have increased by 39 per cent over the same period the previous year to Rs 18,575 crore. However, net profit has

Economic and Political Weekly April 1, 2006

The Week’s Companies declined by 29 per cent to Rs 401 crore due

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(Rs lakh) to the fall in gross refining margins.

JVSL MRPL Kesoram Financial Indicators 2004-05 2003-04 2004-05 2003-04 2004-05 2003-04 KESORAM INDUSTRIES

Income/Appropriations
1 Net sales 667936 327396 1850834 1139064 142196 129554
2 Value of production 672267 326163 1870267 1158796 142196 129554
3 Other income 1898 2303 17305 60593 3753 6836
4 Total income 674165 328466 1887573 1219388 145949 136390
5 Raw materials/stores and spares/
power and fuel consumed 371262 202951 1629362 1048359 90672 81005
6 Other manufacturing expenses 0 0 0 0 0 0
7 Remuneration to employees 10721 4287 4701 2762 11841 11475
8 Other expenses 58144 -24135 47984 35866 34441 27843
9 Depreciation 35954 31288 37814 37820 5349 5359
10 Gross profit 198084 114075 167711 94582 3647 10707
11 Interest 46987 40714 22962 37342 2765 3432
12 Operating profit 151097 73361 144749 57240 882 7275
13 Non-operating surplus/deficit -3836 -4345 1338 210 3469 1024
14 Profit before tax 147261 69016 146087 57450 4351 8300
15 Tax provisions 60250 16148 58112 11509 1000 2000
16 Profit after tax 87011 52868 87976 45942 3351 6300
17 Dividends (includes tax on dist profit) 15073 0 17526 0 1304 1290
18 Retained profits 71938 52868 70450 45942 2047 5009
Liabilities/assets
19 Paid-up capital 46913 163108 176180 176180 4574 4574
20 Reserves and surplus 268059 0 40183 34905 33140 30274
21 Long-term loan 233261 265804 396189 486363 20327 14940
22 Short-term loan 123583 212899 166828 209152 30128 29724
(i) of which, bank borrowings 160211 182436 166828 209152 30128 29724
23 Gross fixed assets 786960 627805 681817 672515 120438 115470
24 Accumulated depreciation 144391 103212 233535 195834 63290 58477
25 Inventories 74341 28791 191162 118935 23024 20307
26 Total assets/liabilities 819996 642912 824572 790336 123031 113444
Miscellaneous items
27 Excise duty 35654 31653 218422 122158 28706 26898
28 Gross value added 243331 147575 193415 74854 18174 21785
29 Total foreign exchange earnings 287316 13731 619132 447745 15227 14097
30 Total foreign exchange outgo 216876 86448 1041485 769574 14091 8149
Key financial and performance ratios
31 Turnover ratio (sales to total assets) 1.0 0.6 2.6 1.6 1.4 1.4
32 Gross value added to gross
fixed assets (%) 34.4 23.3 28.6 11.1 15.4 19.1
33 Return on investment (gross profit
to total assets) (%) 27.1 17.5 20.8 12.3 3.1 9.5
34 Gross profit to sales
(gross margin) (%) 29.7 34.8 9.1 8.3 2.6 8.3
35 Operating profit to sales (%) 22.6 22.4 7.8 5.0 0.6 5.6
36 Profit before tax to sales (%) 22.0 21.1 7.9 5.0 3.1 6.4
37 Tax provisions to profit before tax (%) 40.9 23.4 39.8 20.0 23.0 24.1
38 Profit after tax to net worth
(return on equity) (%) 36.4 35.4 41.2 21.3 9.2 18.3
39 Dividend (%) 27.7 0.0 8.6 0.0 28.5 28.2
40 Earnings per share (Rs) 67.4 4.1 5.0 2.6 7.3 13.8
41 Book value per share (Rs) 244.1 12.6 12.3 12.0 82.4 76.2
42 P/E ratio (multiple) 6.6 3.1 7.2 - 9.7 5.7
43 Debt-equity ratio (adjusted for
revaluation) 1.13 2.93 2.60 3.29 1.34 1.28
44 Short-term bank borrowings
to inventories (%) 215.5 633.7 87.3 175.9 130.9 146.4
45 Sundry creditors to sundry
debtors (%) 184.2 101.0 231.3 186.8 89.9 69.8
46 Total remuneration to employees
to value added (%) 4.4 2.9 2.4 3.7 65.2 52.7
47 Total remunerations to employees
to value of production (%) 1.6 1.3 0.3 0.2 8.3 8.9
48 Gross fixed assets formation
(% growth) 25.4 -1.5 1.4 -0.4 4.3 2.8
49 Growth in inventories (%) 158.2 8.1 60.7 19.3 13.4 3.6

Healthy Performance

K
esoram Industries (KIL), a B K Birla group company, is engaged in the manufacturing and sale of viscose filament rayon yarn (VFY), cement, rayon yarn, transparent paper, spun pipes, textiles, etc. Birla Tyres is the tyre making unit of the company and was brought under the company‘s hold since it had for long been incurring losses.

During 2004-05, KIL reported a 9 per cent increase in net sales to Rs 1,421 crore over 2003-04. However, net profit of the company declined by 46 per cent to Rs 33 crore. The company’s forex earnings rose by 8 per cent to Rs 152 crore.

During the year under review, the production of VFY rose by just 0.2 per cent to 7,265 tonnes. The VFY and transparent paper business suffered mainly due to the rising input costs of wood pulp, sulphur and coal prices. The production of spun pipes decreased by 18 per cent to 33,333 metric tonnes (mt); total despatches also reduced by 16 per cent to 34,001 mt. In the company’s cement business both Kesoram Cement and Vasavadatta Cement achieved the highest ever production of cement and clinker since its inception. The production of blended cement launched under the brand name of “Birla Shakti” increased to 48 per cent in 2004-05 from 36 per cent in 2003-04. The gross turnover of Birla Tyres also increased by just 1.6 per cent to Rs 749 crore.

In July 2005 KIL increased its shareholdings in Mangalam Timber Products (MTPL) by acquiring 5 per cent from the Orissa government at Rs 2 crore. Both KIL and MTPL are B K Birla group companies; KIL is the promoter of MTPL. Prior to the acquisition the promoter’s share in MTPL was 23 per cent.

For the first nine months ended December 2005, KIL reported healthy financial performance. Its net sales increased by 8 per cent to Rs 1,357 crore over the same period the previous year and net profit surged by 34 per cent to Rs 17 crore. The sales revenue of tyres segment rose by 11 per cent to Rs 621 crore; rayon, transparent paper and chemicals by 7 per cent to Rs 151 crore while the cement division recorded

Notes: - not available, P/E multiples are the latest with corresponding last year’s figures. a rise by 5 per cent to Rs 508 crore.

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Economic and Political Weekly April 1, 2006

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