Jindal Steel and Power Ltd

Jindal Steel & Power Ltd. (JSPL) is an Indian industrial giant with a strong presence in the
steel, mining, and infrastructure sectors. Established in 1979, it ranks as the third largest
private steel producer in India.

The Company’s core Businesses are, Steel production, encompassing diverse segments like
flat products, long products, and special steels.

The Key Strengths of Jindal are:

1.Vertically integrated operations, ensuring control over raw materials and costs.

2.Focus on value-added products (VAP) like plates and special steels, commanding higher
margins.

3.Commitment to technological advancements for efficiency and product quality.

The company has its global reach to over 60 countries across continents. The company’s
Sustainability Focus Initiatives for environment-friendly steelmaking and community
development.

The Recent highlights of this successful company are:

 Successful commissioning of a state-of-the-art Hot Strip Mill complex in

Angul, Odisha.

 Declared the highest dividend in 5 years (₹2 per share) in FY2023, reflecting strong
financial health.
 Continued focus on expansion and technological advancements to solidify its position
in the steel industry.

JSPL plays a significant role in the Indian economy, contributing to infrastructure

development, job creation, and exports. By understanding its core business strengths, this
study analyses Jindal’s Financing Policies, Investment Policy, Working Capital, and
Dividend decisions of past 5 financial years. (2019-23)

Financing Policies

Jindal Steel's Financing Policies in the Past 5 Financial Years (FY2019-2023)

Jindal Steel & Power Ltd. (JSPL) has employed a mix of financing policies in the past 5
years, adapting to market conditions and company needs. Here's key focus:
1. Debt Financing:
 Significant reliance: JSPL primarily utilizes debt financing for expansion and capital
expenditure.
 Debt levels fluctuated: Debt levels increased in FY2020 and FY2021 due to
acquisitions and expansion plans, then reduced slightly in FY2022 and FY2023.
 Diversified sources: JSPL utilizes various debt instruments like long-term loans,
working capital loans, and external commercial borrowings.
2. Equity Financing:
 Limited equity issuance: JSPL has not issued significant equity capital in the past 5
years. This suggests an intention to retain control and potentially avoid dilution for
existing shareholders.
 Internal accruals: JSPL focuses on generating internal funds through operations to
finance growth, reducing reliance on external equity.
3. Other Financing:
 Sale of assets: JSPL has occasionally sold non-core assets to generate funds for
specific projects or debt reduction.
 Joint ventures: JSPL has explored joint ventures for specific projects, bringing in
additional partners and sharing financial burden.
Since raising finance by issuing shares is common in companies, did Jindal issue shares?
Jindal Steel (JSPL) has opted for limited equity issuance in the past 5 financial years, this
choice has implications for both the company and its shareholders:
Limited Equity Issuance:
 No new shares issued: JSPL hasn't issued any significant new shares since FY2019.
This indicates a preference for internal accruals and debt financing for expansion.
 Shareholder dilution avoided: Existing shareholders retain their ownership percentage
without dilution, potentially boosting their voting power and dividend per share.
Signals confidence in internal growth: JSPL likely believes its internal resources and debt
capacity are sufficient for current growth plans, avoiding external equity dependence.

Key Observations:
 JSPL prioritizes debt financing for growth, but debt levels are managed prudently.
 The company prefers internal accruals and avoids excessive equity dilution.
 Strategic asset sales and joint ventures have been used for targeted financing needs.
Impact on Shareholders:
  Positive for existing shareholders: Retains voting power and potential for higher
dividend per share due to fewer outstanding shares.
 May limit access for new investors: Limited new shares restrict broader investor
participation and capital inflow.
 Company valuation: Share price might reflect limited future dilution, potentially
impacting valuation compared to companies issuing new shares.

 Debt-heavy financing could raise concerns about financial risk, but JSPL manages it
within acceptable limits.
 Limited equity issuance benefits existing shareholders by avoiding dilution.
 Strategic financing choices aim to balance growth aspirations with shareholder value.

Overall, JSPL's limited equity issuance has benefited existing shareholders by avoiding
dilution and potentially increasing dividends per share. However, it might restrict access for
new investors and impact the company's valuation compared to firms issuing new shares.

Investment policy
Analyzing the available financial statements, we can understand their broader investment
trends and potential impact on performance.
Investment Focus:
 Expansion in core steel business: JSPL invested heavily in expanding its steel
production capacity, particularly in the value-added segment (VAP) like plates and
special steels.
 Diversification: They explored diversification within the steel value chain by
acquiring assets like coal mines and power plants for operational efficiency and cost
control.
 Technological advancements: Investments in modernizing plants and adopting newer
technologies aimed at improving product quality, efficiency, and sustainability.
Impact on Performance:
 Increased capacity: Expansion led to higher production volumes, potentially boosting
revenue and market share.
 Improved margins: VAP products command higher margins, potentially enhancing
profitability.
 Cost control: Diversification through coal mines and power plants could have helped
manage input costs.
 Technological edge: Modernization might have improved operational efficiency and
product quality, contributing to competitiveness.
Challenges and Considerations:
 Debt burden: Expansion primarily furled by debt raises concerns about financial risk,
although JSPL managed it prudently.
 Execution risks: Timely and successful execution of expansion plans and technology
adoption is crucial for realizing benefits.
  Market fluctuations: Steel prices are volatile, impacting the profitability of expansion
plans.
Overall:
Jindal Steel's investment choices seem focused on expanding core operations, diversifying
within the value chain, and adopting new technologies. This strategy holds potential for
revenue growth, margin improvement, and competitiveness, but comes with execution risks,
debt burden considerations, and vulnerability to market fluctuations.

Working capital

Financial Year Current Assets Current Liabilities Working Capital

2022-23 (TTM) 58,868 43,542 15,326
2021-22 54,139 35,416 18,723
2020-21 45,457 29,566 15,891
2019-20 44,160 34,365 9,795
2018-19 40,662 44,202 -3,540

 Inventory Management:
o We can analyse inventory turnover ratios and inventory holding periods from
financial statements to understand their inventory management approach.
Lower ratios and shorter periods suggest efficient inventory management,
potentially reducing carrying costs and improving cash flow.
o News articles or industry reports might mention specific initiatives like just-in-
time inventory systems or supplier collaboration that could contribute to
inventory efficiency.
 Receivables Management:
o Analyzing average collection period and bad debt ratios can indicate their
receivables management practices. Shorter collection periods and lower bad
debt ratios suggest efficient collection practices, improving cash flow and
reducing risk.
o News or reports might mention initiatives like offering discounts for early
payments or stricter credit terms that could impact collection periods.
 Payables Management:
o Analyzing payables turnover ratio can indicate their payables management
approach. Higher ratios suggest longer payment terms, potentially improving
cash flow but impacting supplier relationships.
o News or reports might mention negotiating longer payment terms with
suppliers or utilizing early payment discounts that could influence payables
turnover.
Potential Impact on Performance:
 Effective working capital management (efficient inventory, receivables, and payables
management) can:
 o Improve cash flow by reducing the amount of cash tied up in current assets.
o Lower financing costs by reducing the need for short-term borrowing.
o Enhance profitability by optimizing resource allocation and minimizing
carrying costs.
 Inefficient working capital management can:
o Hinder cash flow, potentially limiting growth opportunities.
o Increase financing costs, impacting profitability.
o Lead to stockouts or production delays due to inventory issues.

Dividend Decisions
Year Dividend Per Dividend Yield Impact on Shareholders
Share (Rs) (%)

FY 2018-19 0.50 1.41 Limited return to shareholders, may have

caused disappointment as company profits
were high.
FY 2019-20 No dividend declared due to COVID-19
Nil Nil impact, negative impact on income-seeking
investors.
FY 2020-21 Moderate return, potentially seen as positive
1.00 2.38 considering the pandemic context

FY 2021-22 1.50 3.49 Higher dividend, likely welcomed by

shareholders, indicating improved financial
health.
FY 2022-23 2.00 4.76 Highest dividend in 5 years, positive signal
for shareholders, reflects strong company
performance.

Overall Impact:
 JSPL's dividend policy has been conservative in the past 5 years, with significant
variations.
 The lack of dividend in FY2020 due to the pandemic likely impacted income-focused
investors negatively.
 Increasing dividends in FY2021, 2022, and 2023 suggest improved financial health
and a commitment to rewarding shareholders.
 The recent high dividend (₹2 in FY2023) might attract income investors and boost
shareholder confidence.
 SIVA SIVANI INSTITUTE OF
MANAGEMENT

CORPORATE FINANCE
ASSIGNMENT

A STUDY ON JINDAL STEEL AND POWER Ltd.’s

FINANCING, INVESTING, WORKING CAPITAL
AND DIVIDEND POLICIES.

BY VISHNUBHATLA NAGA BHARGAVI (32-061)