The stock that turned Rs 10,000 to Rs 4.5 lakh in 20 years

Imagine turning Rs 10,000 into Rs 4.5 lakh. Sounds like the premise of a Ponzi scheme. Yet, this transformation is a reality for investors who placed their faith in JSW Steel 20 years ago. Over the past two decades, the value of this steel manufacturer has compounded 21 per cent annually.

This two-decade-long multibagger story is too intriguing to ignore. Let's take a closer look at how it unfolded.

The early years

Our story begins modestly in 1994, when Jindal Vijayanagar Steel initiated operations with a lone plant in Vijayanagar, Karnataka. The entity that we recognise today as JSW Steel emerged 11 years later, following the merger of Jindal Vijayanagar Steel with Jindal Iron and Steel. During these formative years, the company expanded its presence by establishing more plants. But, the earliest omens of what was to come can be traced back to the mid-2000s.

A true trailblazer

Steel is a commodity, and in most commodity industries, superior production capacity is a prerequisite for growth. Thus, akin to several in the steel industry, JSW Steel's ascent can be attributed to capacity expansions and smart acquisitions. However, what distinguishes JSW Steel from its competitors is its commitment to innovation.

Historically, the steel industry's distribution model relied heavily on an extensive network of dealers who sold products to builders and fabricators. JSW Steel identified that to enhance sales and deepen market penetration, building a brand image and establishing relationships with the end-user is crucial. So, in 2007, it introduced a franchise-based model to the steel industry and set up JSW Shoppe in Hubli, Karnataka. In this model, end-users can directly purchase steel from the retail outlets. This shift not only bolstered JSW Steel's brand image and customer relationships but also set a new industry standard, with many competitors eventually adopting similar models. In fact, Harvard Business School did a case study on JSW Shoppe.

Importing expertise

In the 2000s, the Indian steel industry was leagues behind its global counterparts in technology. JSW Steel addressed this through smart partnerships with several reputed global players. Its two key partnerships were with JFE Steel in 2009 and Marubeni-Itochu in 2011. Notably, it set up a steel processing plant in Northern India with Marubeni-Itochi. The technology prowess acquired through these strategic partnerships helped JSW become the most efficient steel manufacturer in the industry.

The recent years

In the last decade, JSW Steel has stuck to its time-test growth recipe of smart acquisitions and gaining technological expertise. Its two major acquisitions in the last 10 years were Welspun Maxsteel for Rs 1,000 crore in 2014 and Bhushan Steel and Power for over Rs 19,000 crore. The purchase of Bhushan Steel marked JSW Steel's strategic entry into Eastern India, enabling the company to capitalise on the five iron ore mines it had recently secured. Also, it built the world's largest conveyor system at its Vijayanagar plant to transport iron ore from mines for processing.

Its financials have remained impressive, buoyed by these strategic decisions. In the past five years, production has grown 18 per cent annually. Simultaneously, revenue has surged nine per cent each year. Presently, it is one of the largest steel producers with a capacity of 27.7 million tonnes per annum (MTPA).

The path ahead

Recently, the company has inked a joint venture with JFE Steel Corporation to produce grain-oriented electrical steel used in transformers. It plans to invest Rs 5,500 crore in this venture and production is expected to commence by FY27. These new initiatives and its focus on enhancing production should fuel its growth engine in the coming years.

But, there are lurking concerns that should not be ignored. The steel industry is notoriously cyclical, and steel manufacturers witness periodic contractions in margins. Notably, JSW Steel experienced significant margin pressures in FY23 due to challenging macroeconomic conditions (lower global demand, uptick in coal prices, etc.)

Investors should proceed with caution and take these risks into account. It's important to note that this is not intended as a stock recommendation. We only aim to shed light on the strategic moves that have underpinned JSW Steel's expansion over the last two decades. We recommend conducting thorough due diligence before making any investment decisions.

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