According to Arvind Parakh, Jindal Strips vice president, the growth in operating profit has been a combination of factors like higher production (a record production of 79,196 mt in the second quarter as compared to 57,105 mt in the corresponding period previous year) which has resulted in better distribution of overheads. The increased production is a result of the commissioning of phase-I of the cold rolling unit.

Secondly, Jindal Strips procures nickel on a three-four month basis; thus in a scenario where nickel prices are rising (which is the case currently) the company benefits from the time lag between procurement of nickel and consumption of steel.

Nickel prices have recently touched a 29 month high of Rs 7,715 per tonne on the LME. Stainless steel prices in the past two months have increased from a range of $1,150-1,200 per tonne to $1,400-$1,500 per tonne for CR 304 2B 2mm grade stainless steel.

Thirdly, JSL has also benefitted from prudent financial management which has helped in bringing down the cost of funds from 16.5 per cent last year to 15 per cent currently. Fourthly, a 100 per cent captive DG power plant which supplies the company with cheap power, also helped in improving its profitability.

The company, as part of its phase I project, has undertaken some structural changes. It had a CR mill with a capacity of 30,000 tpa which could produce rolls having thickness of 1.20 mm, however, the market demand had shifted to thinner gauge material, which resulted in lower capacity utilisation. JSL as a part of the de-bottlenecking excercise installed a Sendzimer mill, which could produce rolls of thickness as low as 0.25 mm. Commercial production at this mill has started from August 1999, which according to Parakh, is expected to touch a capacity utilisation of 70-75 per cent in the remainder of the year as compared to 34 per cent in the previous fiscal.

In the domestic stainless steel segment, compounded average growth of around 10 per cent has been witnessed over the last two decades and during the last two years, the growth rate had been around 5-6 per cent. This is primarily on the fact that the domestic stainless steel demand is towards utensil sector market, which has not been directly hit by the global recessionary effects. The stainless steel market in India is pre-dominantly towards utensil sector grade, which accounts for 70-75 per cent of the total stainless steel demand of around 650,000 tpa. In utensil sector, 200 series grade is used, of which Jindal Strips is the largest producer in India.

Importantly, Jindal Strips has managed to export around 2,700 mt of cold roll stainless steel in the first half valued at around $4 million. By the end of the current quarter, the company is expected execute export orders of around $7 million.

The current growth avenues aside, JSL is exploring expansion oppurtunities as part of the phase II project. It will be expanding the cold rolling mill capacity at a cost of Rs 250 crores. To fund the project, the company will issue a $22 million foreign currency equity linked debt issue, apart from domestic borrowings and internal accruals. The project will involve setting up of a cold roll mill with an installed capacity of 60,000 tpa, along with value addition lines like Skin Pass Mill, Bright Annealing Line which are expected to be commissioned by November 1999. The cold rolling mill is expected to start production in March 2001.

JSL is well placed for Q3 considering the growth as a result of increased utensil consumption during the festive season as well as higher export turnover, and increasing steel prices. JSL has tied up its nickel requirement untill December end. The scrip which is currently traded at Rs 116.7 after touching a high of Rs 167 offers good upward potential.