Case
Teaching Notes
Supplementary Resources
Abstract
JSW Steel has made the decision to retain Ispat, and attempt to resolve its many problems. JSW develops a comprehensive strategy to develop Ispat into a profitable subsidiary. To do this, many economic, management, and process changes had to be put into place, and JSW had to gain the confidence and support of its shareholders.
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved
Resources
Exhibit 1: Anticipated Merger Benefits and Salient Turnaround Initiatives
A. Merger Benefits and Synergies
The integration of JSW Ispat into JSW Steel is expected to bring significant strategic advantages with it, particularly alternative steel making technologies, ability to achieve swift capacity expansion, shore based facility and Pan India expansion of market reach. The merger completes the integration and aims to capture full value of the combination:
Scale and Strategic Diversification
- Catapults JSW Steel to become one of India’s leading steel companies in terms of installed capacity.
- Economies of scale.
Enhanced Market Reach & Location Advantages
- De-risk single location upstream profile.
- Leverage each other’s marketing and distribution platforms to expand market reach.
- Reduce marketing, general and administration overheads via better utilization of infrastructure and elimination of redundancies.
Strong Technology Platform
- House multiple modern steel-making technologies under one roof.
- Enable flexible production processes.
Financial Benefits
- Realize significant financial benefits via accelerated utilization of unabsorbed tax losses at JSW Ispat as well as optimal use of depreciation on further capital investments.
- Improve JSW Ispat’s cost structure via faster implementation of several plant integration initiatives.
- Potential to reduce cost of financing.
B. Salient Turnaround Initiatives
JSW Ispat has made significant progress in its turnaround journey since the acquisition by JSW Steel. A number of strategic and operational initiatives have been completed, and some are in progress:
- JSW Steel assisted in better sourcing of key production inputs especially power supplies from JSW Energy leading to improved profitability.
- Marketing strategies have been reworked leading to freight synergies and better realizations.
- The complexity previously arising from the financial imbalance at JSW Ispat at the time of acquisition was removed through timely equity infusion, debt refinancing and rationalisation of working capital funding.
- JSW Ispat was brought out of CDR through enhanced ability to pay interest. Currently, the company is EBITDA positive.
- Commissioning of 55MW power plant, lime calcination plant and railway siding by June 2013 is expected to give significant benefits.
- JSW Steel continues to sustain the turnaround through cost reduction initiatives in the form of setting up of 1 MTPA coke oven and a 4 MTPA pellet plant expected to be commissioned in FY 2014 to ensure dedicated supplies of these key inputs at competitive costs.
As a result of the above milestones, JSW Ispat is now stabilized and is poised to be profitable on completion of the above mentioned projects.
Source: JSW’s press release issued on September 1, 2012
Exhibit 2: Electricity Consumption
2008–09 | 2009–10 | 2010–11 | 2011–12 | 2012–13 | |
Dolvi | |||||
Electricity purchased (units in ‘000s) | 1637039 | 2231972 | 1556256 | 1741154 | NA |
Own generation (units in ‘000s) | 67689 | 84657 | 61075 | 39399 | NA |
Amount paid (in crores) | 740.50 | 1142.90 | 864.15 | 1008.50 | NA |
Rate/unit (Purchased) | 4.52 | 5.12 | 5.55 | 5.79 | NA |
Rate/unit (Produced), From Furnace oil | 5.65 | 4.94 | 6.27 | 8.21 | NA |
JSW Vijayanagar Plant | |||||
Cost of generation (own captive plant) | 3.05 | 2.62 | 3.24 | 3.81 | 3.81 |
Estimated saving by replacing own generation from Furnace Oil to Captive power plant (in crores) | 17.60 | 19.64 | 18.51 | 17.34 |
Source: Annual reports of JSW
Exhibit 3
Financial Performance of Ispat Steel
(in INR crores)
Year | Net Turnover | EBIDTA | PBT | PAT |
2008–09 | 8131.98 | 1430.73 | −1023.89 | −688.11 |
2009–10* | 10132.73 | 1722.94 | −336.46 | −322.34 |
2010–11 | 8226.64 | 649.46 | −2150.53 | −1805.88 |
2011–12 | 11104.11 | 1193.91 | −1096.10 | −317.00 |
2012–13** | 8113.00 | 737.00 | - | 86.00 |
2013–14 | Plant-wise data not available (Blended EBIDTA: INR 4500, Dolvi’s EBIDTA> INR 8000) |
*15 months from April 2009 to June 2010
**9 months from July 2012 to March 2013. Results merged with JSW Steel
Operational Data of JSW Ispat Steel
Year | Capacity Utilization | DRI (MT) | Hot Metal (MT) | HRC production (MT) | Total expenditure (INR crores) | Expenditure per ton of HRC (INR/Ton) |
2009–10 | 80% | 1.68 | 2.13 | 3.31 | 8855.75 | 26755 |
2010–11 | - | 1.21 | 1.35 | 2.20 | 7901.53 | 35916 |
2011–12 | <80% | 1.27 | 1.59 | 2.48 | 10335.16 | 41674 |
Financial Performance of JSW Steel
(in INR crores)
Year | Net Turnover | EBIDTA | PAT |
2008–09 | 14001.25 | 3092.67 | 458.50 |
2009–10 | 18202.48 | 4805.74 | 2022.74 |
2010–11 | 23163.24 | 4856.17 | 2010.67 |
2011–12 | 32060.47 | 5630.80 | 1625.86 |
2012–13 | 38763.41 | 6308.82 | 1801.22 |
2013–14 | 44529.47 | 8782.59 | 1334.51 |
Source: Annual reports of Ispat, JSW Ispat Steel, and JSW Steel from 2008–09 to 2013–14
Exhibit 4: Ispat Balance Sheet 2009–10
(in INR crores)
As at June 30, 2010 | As at March 31, 2009 | |
SOURCES OF FUNDS | ||
Shareholders’ Funds | ||
Share Capital | 2225.09 | 2272.51 |
Application Money towards Equity Warrants | 18.83 | 51.98 |
Reserves and Surplus | 1471.00 | 1544.48 |
3714.92 | 3868.97 | |
Loan Funds | ||
Secured Loans | 7156.9 | 7151.28 |
Unsecured Loans | 24.85 | 200.24 |
7181.75 | 7351.52 | |
TOTAL | 10896.67 | 11220.49 |
APPLICATION OF FUNDS | ||
Fixed Assets | ||
Gross Block | 13456.02 | 13557.39 |
Less: Depreciation | 5528.67 | 4669.58 |
Net Block | 7927.35 | 8887.81 |
Capital Work-in-Progress | 63.73 | 98.52 |
Pre-operative and Trial Run Expenses (Pending Allocation) | - | 4.19 |
7991.08 | 8990.52 | |
Investments | 229.37 | 232.89 |
Deferred Tax Asset (Net) | 964.28 | 950.13 |
Foreign Currency Monetary Items Difference Account | 2.08 | 4.94 |
Current Assets, Loans and Advances | ||
Inventories | 1934.17 | 1382.93 |
Sundry Debtors | 758.97 | 564.18 |
Cash and Bank Balances | 203.06 | 79.39 |
Loans, Advances and Deposits | 796.87 | 927.33 |
3693.07 | 2953.83 | |
Less: Current Liabilities and Provisions | ||
Current Liabilities | 4080.93 | 3708.97 |
Provisions | 36.51 | 35.00 |
4117.44 | 3743.97 | |
Net Current Assets | (424.37) | (790.14) |
Profit and Loss Account Debit Balance | 2134.23 | 1832.15 |
TOTAL | 10896.67 | 11220.49 |
The financial year was extended to a 15 month period ending on June 30, 2010.
Source: Ispat Steel Annual Reports
Exhibit 5: Ispat Profit and Loss Account 2009–10
(in INR crores)
April’09-June’10 (15 Months) | 2008–2009 (12 Months) | |
INCOME | ||
Sales (Gross) | 10983.14 | 9063.44 |
Less: Excise Duty | 850.41 | 931.46 |
Sales (Net) | 10132.73 | 8131.98 |
Other Income | 445.96 | 405.86 |
TOTAL (A) | 10578.69 | 8537.84 |
EXPENDITURE | ||
Decrease/(Increase) in stocks | (269.53) | 105.05 |
Excise Duty & Cess on stocks | 29.54 | (18.93) |
Raw Materials Consumed | 5895.25 | 4650.84 |
Personnel Cost | 273.36 | 207.60 |
Manufacturing, Selling & Distribution and Administrative Expenses [Including Prior Period expenses INR 3.56 crores (INR 10.97 crores)] | 2927.13 | 2162.55 |
Interest | 1285.45 | 1159.3 |
Depreciation | 876.28 | 728.10 |
Less: Transfer from Revaluation Reserve | 102.33 | 81.48 |
773.95 | 646.63 | |
TOTAL (B) | 10915.15 | 8913.03 |
Profit/(Loss) before Tax and Exceptional Items (A-B) | (336.46) | (375.19) |
Add: Exceptional Items | - | (648.70) |
Profit/(Loss) before Tax | (336.46) | (1023.89) |
Less: | ||
Provision for Wealth Tax | 0.03 | 0.03 |
Deferred Tax Charge(Credit) | (14.15) | (338.81) |
Fringe Benefit Tax | - | 3.00 |
Profit/(Loss) after Tax | (322.34) | (688.11) |
Less: Debenture Redemption Reserve written back | 20.26 | 27.71 |
Add: Loss brought forward from Previous Year | (1832.15) | (1046) |
Add: Adjustments | ||
(a) Towards Exchange Differences of 2007–08 transferred to Fixed Assets (Net of Depreciation INR 6.44 crores and deferred tax credit of INR 63.23 crores) | - | (122.81) |
(b) Towards Exchange Differences of 2007–08 transferred to Foreign Currency Monetary Item Translation Difference Account (Net of amortisation INR 1.48 crores and deferred tax credit of INR 1.52 crores) | - | (2.94) |
Loss carried to Balance Sheet | (2134.23) | (1832.13) |
Basic and Diluted Earnings per Share (INR) | (3.37) | (6.25) |
[Nominal value of shares INR10 each] |
The financial year was extended to a 15 month period ending on June 30, 2010.
Source: Ispat Steel Annual Reports
Exhibit 6: JSW Steel Balance Sheet 2009–10
(in INR crores)
As at March 31, 2010 | As at March 31, 2009 | |
SOURCES OF FUNDS | ||
Shareholders’ Funds | ||
Share Capital | 527.11 | 537.01 |
Reserves and Surplus | 9179.23 | 7422.24 |
9706.34 | 7959.25 | |
Loan Funds | ||
Secured Loans | 8987.51 | 8214.61 |
Unsecured Loans | 2597.59 | 3058.02 |
11,585.10 | 11272.63 | |
Deferred Tax Liability | 1964.95 | 1421.16 |
TOTAL | 23256.39 | 20,653.04 |
APPLICATION OF FUNDS | ||
Fixed Assets | ||
Gross Block | 21,795.58 | 16896.75 |
Less: Depreciation | 4,929.44 | 3,810.31 |
Net Block | 16,866.14 | 13,086.44 |
Capital Work-in-Progress | 6,684.27 | 9,242.06 |
23,550.41 | 22,328.50 | |
Investments | 1,768.35 | 1,250.11 |
Current Assets, Loans and Advances | ||
Inventories | 2,585.77 | 2051.42 |
Sundry Debtors | 563.25 | 398.14 |
Cash and Bank Balances | 287.11 | 419.96 |
Loans and Advances | 2,123.39 | 1,744.88 |
Other Current Assets | - | 17.24 |
5,559.52 | 4,631.64 | |
Less: Current Liabilities and Provisions | ||
Liabilities | 7,357.67 | 7,476.28 |
Provisions | 264.22 | 80.93 |
7,621.89 | 7,557.21 | |
Net Current Assets/(Liabilities) | (2,062.37) | (2,925.57) |
TOTAL | 23,256.39 | 20,653.04 |
Source: JSW Steel Annual Report 2009–10
Exhibit 7: JSW Steel Profit and Loss Account 2009–10
(in INR crores)
| Year ended Mar 31, 2010 | Year ended Mar 31, 2009 |
INCOME | ||
Domestic Turnover | 16460.61 | 10680.50 |
Export Turnover | 2935.82 | 4450.21 |
Sale of Carbon Credits | 60.21 | 48.58 |
19456.64 | 15179.29 | |
Less: Excise Duty | 1254.16 | 1178.04 |
Net Turnover | 18202.48 | 14001.25 |
Other Income | 532.84 | 259.56 |
Total Income | 18735.32 | 14260.81 |
EXPENDITURE: | ||
Materials | 10460.68 | 8450.10 |
Employees Remuneration and Benefits | 365.20 | 288.75 |
Manufacturing and Other Benefits | 3103.70 | 2429.29 |
Interest and Finance Charges (Net) | 862.68 | 797.25 |
Depreciation | 1123.41 | 827.66 |
15915.67 | 12793.05 | |
Profit before taxation and Exceptional Items | 2819.65 | 1467.76 |
Exceptional Items | ||
Exchange Loss | - | 790.13 |
Profit before Taxation | 2819.65 | 677.63 |
Provision for Taxation (including wealth tax) | 796.91 | 219.13 |
Profit after Taxation | 2022.74 | 458.50 |
Profit brought forward from earlier years | 3883.15 | 3505.86 |
Amount available for Appropriation | 5905.89 | 3964.36 |
Appropriations: | ||
Transfer (to)/from Debenture Redemption Reserve | (125.00) | 20.45 |
Transfer to Capital Redemption reserve | (9.90) | - |
Dividend on Preference Shares | (28.92) | (28.99) |
Proposed Final Dividend on Equity Shares | (177.70) | (18.71) |
Corporate Dividend Tax | (34.31) | (8.11) |
Transfer to general Reserve | (202.28) | (45.85) |
Balance carried to Balance Sheet | 5327.78 | 3883.15 |
Earnings per share (Equity shares, par value of INR10 each) (in INR) | ||
Basic | 106.34 | 22.70 |
Diluted | 105.94 | 22.70 |
Source: JSW Steel Annual Report 2009–10
Exhibit 8
Share Price of Ispat Steel and JSW Ispat Steel From 2009 to 2013
Month | 2009–10 | 2010–11 | 2011–12 | 2012–13 | ||||
High | Low | High | Low | High | Low | High | Low | |
Apr | 14.80 | 11.24 | 21.50 | 19.70 | 24.75 | 22.65 | 13.27 | 11.30 |
May | 24.72 | 13.76 | 19.85 | 17.00 | 22.85 | 21.55 | 12.09 | 9.50 |
Jun | 28.00 | 20.40 | 18.55 | 16.60 | 21.65 | 18.45 | 10.87 | 9.65 |
Jul | 23.20 | 16.60 | 18.55 | 17.65 | 20.80 | 17.85 | ||
Aug | 24.20 | 21.25 | 19.30 | 17.55 | 18.25 | 13.00 | ||
Sep | 24.20 | 22.30 | 24.35 | 18.85 | 16.00 | 13.01 | ||
Oct | 24.70 | 18.80 | 23.85 | 19.60 | 13.79 | 12.25 | ||
Nov | 21.05 | 18.05 | 21.00 | 16.35 | 13.60 | 9.65 | ||
Dec | 22.35 | 19.40 | 24.95 | 17.70 | 11.00 | 9.06 | ||
Jan | 23.30 | 19.15 | 25.45 | 22.35 | 13.94 | 9.14 | ||
Feb | 20.35 | 18.15 | 24.85 | 21.05 | 15.90 | 13.00 | ||
Mar | 20.10 | 18.90 | 23.35 | 21.60 | 14.82 | 11.95 |
Share Price of JSW Steel From 2009 to 2013
Month | 2009–10 | 2010–11 | 2011–12 | 2012–13 | ||||
High | Low | High | Low | High | Low | High | Low | |
Apr | 387.70 | 232.50 | 1300.00 | 1170.50 | 1015.00 | 915.00 | 771.90 | 665.00 |
May | 596.00 | 345.80 | 1274.00 | 984.95 | 978.00 | 855.00 | 735.40 | 566.00 |
Jun | 720.00 | 494.00 | 1118.30 | 1000.00 | 981.60 | 824.00 | 686.00 | 580.80 |
Jul | 713.90 | 475.05 | 1231.00 | 1020.00 | 940.00 | 760.50 | ||
Aug | 762.15 | 648.00 | 1169.80 | 1085.00 | 780.00 | 594.65 | ||
Sep | 852.00 | 654.55 | 1344.20 | 1132.10 | 745.00 | 552.20 | ||
Oct | 935.00 | 710.00 | 1400.00 | 1212.00 | 669.40 | 532.05 | ||
Nov | 1039.00 | 652.00 | 1363.40 | 1095.00 | 717.00 | 536.00 | ||
Dec | 1051.00 | 935.00 | 1240.00 | 1033.35 | 638.45 | 464.00 | ||
Jan | 1205.95 | 932.00 | 1212.50 | 851.55 | 702.80 | 502.60 | ||
Feb | 1109.00 | 937.50 | 945.45 | 752.00 | 885.00 | 671.80 | ||
Mar | 1284.80 | 113.40 | 972.50 | 831.35 | 815.00 | 661.30 |
On May 3, 2013, Bombay High Court sanctioned a composite scheme of amalgamation and arrangement under the Companies Act 1956 amongst JSW Steel Limited, JSW Ispat Steel Limited, JSW Building Systems Limited, JSW Steel Coated Products Limited with effect from July 1, 2012, the appointed date.
Source: Annual Reports of Ispat, JSW Ispat Steel and JSW Steel
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved