Sajjan Jindal's Cloning Factory

It was a night Sajjan Jindal will never forget. It was the first week of October almost 11 years ago. At the age of 38, the second son of industrialist O.P. Jindal was making the biggest bet of his life. He was about to commission a Rs. 4,000 crore integrated steel plant in Vijaynagar in Karnataka. And he had banked on an unknown and untested technology called Corex. Jindal reckoned that the technology was cleaner, used low-grade coal and thus offered higher margins. His peers thought it was suicidal.

Fortune usually does favour the brave. But this one time, it didn’t. The night before the plant was to go on-stream, unseasonal heavy rains lashed the arid region. The coal conveyor stopped working and 200 workers had to manually feed coal to generate enough heat and melt the iron. But by then, the coal had gotten wet — and all efforts to get the plant started hit one technical snag after another. Eventually, the plant had to be shut down.

It was a crippling blow. J.K. Tandon, then managing director of Jindal Vijaynagar Steel and one of the directors of the renamed JSW Steel Ltd., was by Jindal’s side at that time. “A man with a lesser heart wouldn’t have been able to stand it.” But Jindal did. He stayed on the site and toiled hard with his engineers, sorting out more than 1,000 snags. It took him six months to restart the plant. Three years later, he commissioned a second Corex plant — which eventually became a case study for steel plants all over the world. J.J. Irani, the former managing director of Tata Steel, would later visit Vijaynagar only to go back and tell his team in Jamshedpur, “Look out for this man; he will be as good as us.”

Irani was right. Seven years later, Jindal’s Rs. 20,000 crore steel business is the largest in the country, surpassing even Tata Steel. But recognition has been slow to come. Maybe it had to do with the fact that with its takeover of Anglo Dutch major Corus, Tata Steel stole a march over JSW Steel and moved into a completely different orbit. Or that Jindal still hasn’t clearly positioned himself in the Mumbai industrialists’ club. Even within his own family, his younger brother Naveen, who runs Jindal Steel and Power (JSPL), has a stronger profile. He’s a Member of Parliament and the media seems to hang on to every word he says.

Sajjan’s stint as Assocham (the Associated Chambers of Commerce and Industry of India) president in 2008 did help, but not enough to be spoken in the same breath as Sunil Mittal, the Adanis or the Ruias. Even the markets haven’t quite given him the thumbs up yet. Though the turnover of Sajjan’s company is double of Naveen’s, JSW Steel’s market value languishes at Rs. 17,000 crore, well behind JSPL’s Rs. 58,000 crore, thanks to the latter’s highly profitable power business and considerable mining assets.

That’s why the next five years are so crucial for Sajjan Jindal. And it isn’t about the fact that he’s set himself a target to double his steel capacity in four years. He’s now begun crafting an ambitious diversification plan to expand into power, ports and infrastructure, cement and aluminium. In the next five years, he’s expecting to touch a turnover of Rs. 60,000 crore. The size of the plan may not give any of his peers’ sleepless nights. But it could change the way the world looks at Sajjan Jindal. Jindal revels in executing huge projects. But such diversification is often a bugbear for most Indian business families.

What Sajjan Jindal is attempting makes intuitive sense: He is drawing from his knowledge of executing large steel projects. It involved setting up a captive power project, a port and even a cement plant. Aluminium, however, is pure opportunism. And he has carefully handpicked a CEO for each business who will drive the expansion. Each of these businesses will be listed locally and if all goes well, the group holding company could even be listed overseas.

These CEOs will have complete autonomy to run their business. Jindal is clear about his own role. “The way we use technology differentiates us from the rest. I like to be in control here. My inner belief is that I should know more than my CEO of that business. When I am discussing technology, I should know everything. There are others to look after the commercial and financial aspects of the business,” he says.

More than just Gut
Jindal started off as a manager, back in 1984 when his father O.P. Jindal put him to test by asking the 25-year-old mechanical engineer to turn around operations at two units near Mumbai. The units were making losses of Rs. 7 crore on revenues of Rs. 10 crore every year. He bet on new technology that saved costs, improved productivity and thus increased margins. It was an expensive gamble, but it paid off.

Over 25 years later, that confidence is apparent. Jindal says he “doesn’t believe in consultants” or “in analysing too much”. But he relies on native wisdom to select, test and push his chief executives. “Our way is to give initial capital and from that capital if he (CEO) keeps generating returns, then he can go expanding,” he says. And Jindal takes care of two key functions — deciding the technology and picking the people who would run it. “If you control these two well, others will follow,” is his mantra.

JSW Energy seems to be among the few companies that has spent enough time in understanding the business before making the big step forward. The power foray began in the early 90s with a joint venture with Belgium’s Tractebel to utilise energy that would come out as by-product from the Corex steel plant and produce electricity. The tie-up with the global power service provider was a godsend.

While state electricity companies were employing four people to generate one megawatt (MW) of power, JSW was using less than half for every MW of power produced. To drive the joint venture, Jindal roped in S.S. Rao, a veteran at NTPC, the biggest power producer in the country. Though Rao left JSW in 2005 to join the Aditya Birla Group, Jindal got him back within two years. He had bigger plans after the initial success in the power business and wanted his man back.

Tractebel exited the JV in the early part of the decade, but the Jindals had gained enough experience to go ahead and start selling power on merchant basis. But initially, Rao says Jindal hesitated in investing capital to build an extra 130 MW of power facility at the Karnataka plant. “But once I explained the benefits of selling power on merchant basis, he saw the scope and entrusted me,” says Rao.

Capt. B.V.J.K. Sharma, whom Jindal had picked from the Adani Group, went about building two berths at Goa port, which were initially acquired to handle raw materials and finished products for the steel plant in Karnataka. It turned out to be a profitable venture. So Jindal wondered if it was viable to expand into ports business. Sharma came back with a Rs. 5,000 crore investment plan and Jindal readily obliged. “The CEOs know that we want to take the organisation into the next level,” says Jindal. “Five years down the line, I think the top management team that will run different businesses will be a replica of me. I would expect that they would do what I do today or sometime ago so that we can grow even faster,” he adds in an afterthought.

It didn’t work all the time though. For instance, the head of JSoft (the IT company that was initially set up to help in JSW’s corporate social responsibility (CSR) initiative but is now set to drive the foray into services) joined the group when Jindal spotted him making a presentation for a software company. But two years into the assignment, he decided to move on. Though it has happened “rarely,” says Jindal, “if I think they can’t be empowered, they don’t remain in the organisation.”

Delivering on the Promise
Jindal is pushing himself hard to up the ante. His family and associates worry that he may well be over-stretching. Colleagues recount meetings with the boss in his car on the way home or to the airport, when he admits that fatigue had set in. But they continue to get email replies well past midnight. “After a project is over, we think we can now relax a bit. But Mr. Jindal has moved on immediately and is looking for land for another project!” says an associate in Jindal Mansion, the group’s headquarters in Mumbai. Even his wife Sangita Jindal, who gave shape to the well-planned steel township in Vijaynagar Karnataka, would want her husband to give more time and thought to the marriage of their eldest daughter.

A former JSW employee avers that Jindal is a shrewd and smart businessman but also “very, very” ambitious. “I have started late. Look at the Tatas and Birlas. They are already so big, so I need to grow faster,” he is said to have remarked at an internal meeting. Though he has become the largest private steel maker in India, Jindal realises his company should have a capacity of 30 million tonnes a year to be counted among the world’s elite. He is pumping almost Rs. 40,000 crore in the next 10 years to scale up the steel business.

And to turn JSW into a conglomerate, Jindal will have to invest another Rs. 60,000 crore over the same time frame to rub shoulders with the business houses he admires. Jindal wants to make this growth a constant. Every fortnight, 25 of the top managers meet at the group headquarters to come up with and reflect on ideas. If a new idea looks good, presentations are made to Jindal.

While immediate financial concerns might be assuaged because the long-term debt of a little over Rs. 14,000 crore is within JSW’s Rs. 16,800 crore market cap, the huge expansion plans could make the Group mainstay, JSW Steel, overleveraged. Industry analyst Giriraj Daga of Khandwala Securities outlines the concern in a recent note: “High capital expenditure has resulted in higher debt for the company, which further got heavier due to sluggish performance during FY2009. The company debt-equity ratio has moved to 2.1 during FY2009 from 1.5 in FY2008 and 0.7 in FY2007. The debt-EBITDA ratio has also moved very sharply to 5.4 from 3.4 in FY2008 and 1.5 in FY2007. Higher leverage has further exaggerated the crisis since its interest coverage ratio has tumbled to 2.7 during FY2009 from 5.7 in FY2008 and 7.0 in FY2007.”

That’s why Jindal needs to achieve high levels of capital productivity in each of his new businesses. He’s laid down a simple thumb rule: All expansion projects must generate returns within three years. All greenfield projects, except for a longer gestation project like ports, will get four years to deliver. But while Jindal focusses on what he enjoys best — building assets on the ground — invariably there are things that are not always within his control. For instance, one of his biggest steel projects in West Bengal is stuck due to a set of complex reasons, including the Naxalite problem. Another project in Jharkhand has yet to go beyond the land acquisition stage.

Outside, people already have taken their bets. Industry peers say his further expansion of the steel facility at Karnataka, where JSW recently got permission to increase capacity to 16 million tonnes a year, could turn out to be a “logistics nightmare for a landlocked plant”. Others like Kameswara Rao, India Leader for Energy, Utilities and Mining at PricewaterhouseCoopers, feel that Jindal is playing it right. “He is leveraging on his strengths that are derived from the steel business. Each of the new business has a linkage and synergy with the Group’s core, which is steel,” says Rao. The debate could heighten after a few years because plans are on to alter the Group’s manufacturing portfolio with a foray into services, possibly in education and IT.

Jindal though downplays it. “JSoft is a good company,” he says. “But whether it can be scaled up we don’t know as of now. It could happen… it all depends on him [CEO Raghu Bhargava].”

For the past few years, Jindal says he has been studying the way conglomerates are managed. He’s looked at models like Samsung, ABB, Siemens, the Tata group and AV Birla group.

In his book, he seems to lean towards the idea of a loose conglomerate with a powerful managing director heading each of the firms. Yet he’s mindful of the problems that J.R.D. Tata had with his satraps. “Each CEO in our group is highly empowered and takes all the decisions. I don’t worry about losing control. We are also clear on our retirement policy,” he says.