positive long-term growth predictions

The Group’s joint venture in India, JSW Severfield Structures Limited (‘JSSL’) is an important part of its overall strategy. The Group holds a 50 per cent shareholding in JSSL alongside its partner JSW Steel Limited (‘JSW’), India’s largest steel producer. JSSL also has an interest of 67 per cent in a metal decking business, JSWSMD Limited.

 

2020 performance

JSSL has performed very strongly in the current year. The business continued to expand and almost doubled its profit from 2019, of which the Group’s after tax share was £2.2m (2019: £1.2m). This higher profitability reflects an increase in revenue of 30 per cent to £109.3m (2019: £84.1m) and an increase in the operating margin to 8.5 per cent (2019: 6.4 per cent), resulting in a profit before tax for JSSL of £5.6m (2019: £3.2m). The improvement in the margin was anticipated and reflects an increased mix of commercial work compared to the higher levels of industrial work which were delivered in 2019.

Total output for 2020 was an impressive 96,000 tonnes split between the Bellary plant and subcontracting, reflecting the growth of JSSL’s own business and the greater acceptance and use of steel in construction. This volume was split across various sectors including projects in healthcare, the multi-use commercial market, retail and industrial applications (particularly for JSW), all delivered and constructed with a high standard of health and safety.

JSSL’s health and safety record is excellent with 2020 another year free of lost time incidents (‘LTI’). This is a very pleasing statistic which means that approximately 20 million fabrication and construction hours have been undertaken since the last LTI in 2014, resulting in many certificates and awards from clients and health and safety organisations in India.

The expansion of the Bellary facility, which has expanded factory capacity from c.60,000 tonnes to c.90,000 tonnes, is now complete. The expansion was successfully completed on time and ahead of budget.

 

COVID-19 and market developments

The COVID-19 pandemic is impacting JSSL in 2021. On 24 March 2020, the government of India, under Prime Minister Narendra Modi, ordered a nationwide lockdown for 21 days, limiting movement of the entire 1.3 billion population of India. At the same time all international travel to and from India was cancelled. The lockdown has been subsequently extended at various times, although with some slight easing for various sectors and regions under a risk-based traffic light scheme.

As a result of this, JSSL’s factory and site operations have been disrupted in the first quarter of 2021, a situation which is likely to continue over a period of several months. Given the rapidly changing dynamics in the external environment, it is difficult to predict with any accuracy what the extent of this disruption will be on JSSL’s profitability in 2021. JSSL’s order book was £110m at 1 June 2020 (1 November 2019: £134m), and this contains a good mix of higher margin commercial work. Despite the ongoing market uncertainty, JSSL’s pipeline of potential orders continues to include a number of commercial projects for key developers and clients with whom it has established strong relationships.

 

JSSL

Despite the recent challenges of COVID-19, JSSL is well positioned for future market expansion. Since its inception ten years ago it has built up a reputation as the number one design and build structural steel company in India, providing a full design, fabrication and site construction service. This fully integrated and expert offering gives clients, developers, architects, consultants and contractors confidence that complicated and changing project requirements can be delivered on time and within budget.

Through its performance and know-how, JSSL has established excellent strategic relationships with major construction players, positioning it well for the future.

JSSL has also established a network of strategic suppliers and subcontractors which it continually audits for health, safety, quality and assurance purposes to support the further supply of certain fabricated steel products, all of which contribute to overall revenues.

 

Current and future operations

JSSL’s operations are based on a 65-acre site in Bellary, Karnataka. The plant has been designed to optimise JSSL’s product range, quality and productivity, as befitting the demands of the construction industry in India. Incorporating state-of-the-art technology and processing equipment, the plant is managed and operated by a growing workforce containing highly qualified, experienced people. Bespoke plated products and INDISEC® are manufactured on-site offering clients a range of benefits.

Depending on mix, the expanded capacity of the Bellary facility is c.90,000 tonnes per annum. The key characteristics of the plant are as follows:

  • The original configuration was two fabrication lines. Four narrower fabrication lines have been added in new factory space, following completion of the expansion. These service JSSL’s target commercial and industrial sectors of multi-mix commercial, healthcare, data centres, retail and the industrial and manufacturing sectors.
  • A further INDISEC® plated beam line has been added to the existing two plated beam lines, together with a bit shop and additional painting facilities.

 

Outlook

Whilst the short to medium-term situation remains challenging as a result of COVID-19, the longer-term growth predictions for India remain very positive. With JSSL’s holistic design and build capability, the successful implementation of new operational capability and capacity and its established network of suppliers and contractors, it is well set to take further advantage of both economic and sector growth and also further growth through the continued conversion of the market from concrete to steel.

Despite the current period of uncertainty, we remain optimistic about the long-term development of the Indian market and of the value creation potential of JSSL, especially considering the political, commercial, social and technological changes made in India over recent years, the government’s ongoing focus on simplifying regulations and the ‘ease of doing business’, and the significant expansion of the business already evidenced to date.