Steel King of the world.
All of us have sometimes had a second thought about our strengths and our skills. This man, too, was stuck with self-doubt and was very conscious of the fact that he couldn't speak English or solve math. Today, when he enjoys his $20 billion fortune, he says that the person who is able to challenge his self-doubt and fight every day is getting close to becoming the person he always dreamed of. The man I am talking about resembles his name, and he is none other than Mr. Lakshmi Mittal. Born in Sadulpur, Rajasthan, in 1950, he graduated from St. Xavier's College in Kolkata, where he received a Bachelor of Commerce degree. Working with his family in India and Indonesia, this man went out to rule not just the Indian steel market but to dominate world steel production. He is the man behind building the world's second-biggest steel company with $68 billion of revenue in 2023 and the man behind the biggest acquisition deal in the steel business worth $35 billion. Without further ado, let me narrate to you the story of the ever-smiling Mr. Lakshmi Mittal.
After completing his bachelor's, Mr. Mittal wanted to travel to a few destinations with his friends. One of the destinations to which he was heading was Indonesia. His father had purchased a land parcel in Indonesia and asked Lakshmi Niwas to either sell the land or come up with an idea to make it profitable. His father was already running a steel-making company, but on a very small scale. In the 1970s, the Indian economy wasn't a favorable market for doing business because of government intervention. He always knew that if he wanted to grow his father's business, he would have to think globally instead of limiting his scope to India. In 1976, Mittal Shifter went to Indonesia and started trading steel scrap on that land. In just a few years, he acquired a company called ISPAT Indo. This was his first step towards globalization. Little did the world know that a storm named Lakshmi Mittal was on its way.
When he started running the Indonesian operation, he came to the conclusion that the company was lacking integration and that, in order to capture a larger market, vertical and horizontal integration were necessary. Considering the shop he runs right now, the Indonesia operation was like a toy with which Mr. Mittal was experimenting with his strategies. He was a visionary and knew that someday or another, he would run a bigger shop. The fundamentals will remain the same, and hence, he kept on experimenting with different ideas and strategies. Within 3 years of operations, he found out the cost of producing 1 ton of steel was much cheaper than the rate when he first acquired the company. Following this strategy, the group started venturing into other markets, and in 1989, he acquired an ailing plant in Trinidad and Tobago, a country in the Caribbean. One drawback of running a family-owned business is the threat of partition. The Mittal family was no different. Looking at the speed with which Mr. Mittal was growing, his relatives tried calming him down, which he refused. This led to the group being divided into Indian and non-Indian operations.
Considering his ability to build relations and execute better, foreign operations were handed over to Lakshmi Mittal under a new company called ISPAT International, and the Indian operations remained under the control of his younger brothers, Mr. PK Mittal and Mr. VK Mittal. May it be Dubai's Burj Khalifa or the Burj Al Arab, New York's World Trade Center or London's Orbit Tower, the Rockefeller Center, or the Empire State Building, one thing that all these historical and magnificent monuments have in common is the steel made by Arcelor Mittal. It took his father 16 years to build a mill and run it profitably. When Mr. Mittal undertook global operations, he wanted to make sure that his execution speed and his return on investment should be high, considering the fact that steel is an asset-heavy business. He had limited resources, limited capital, and limited manpower, and to add salt to his wounds, ISPAT International's gross profit margins were also low. The only thing that was unlimited with Mr. Mittal was his conviction and courage.
During the 1990s, the demand for steel outpaced the supply. The US markets were roaring, and industrial activities were in full swing. Steel supply was in deficit because capital-hungry businesses ate their profits. Businessmen are not greedy; they are opportunity seekers. Mr. Mittal wanted to swiftly fill in this gap and restore equilibrium. He knew that his father's first mill took 16 years to get running profitably. He was finding ways to come up with a plan that would reduce this time frame. Human capital for any organization is supreme. Mr. Mittal laid out a plan that was going to mint billions for his firm. He came up with the plan of acquiring bankrupt companies or companies that were bleeding money and turning them into cash cows. This idea was no short of a masterstroke because Mr. Mittal was getting machines and equipment worth billions for millions, which were eventually making billions for the firm.
Considering the shortfall in money, he knew that immediate acquisition was not possible, and hence he came up with another model called the lease-and-buy option. Under this, he would lease out a plant from a bankrupt company, turn it into a cash cow, and use the same cash to buy out the entire company. His first acquisition under this framework was of a company named Trinidad & Tobago in 1989. His next acquisition was of a Mexican company called Balsa Mills in 1992. This strategy worked flawlessly for him and still does. In the year 2004, Mr. Mittal consolidated his operations to form a new company called Mittal Steel. For more than two decades, he avoided debt by plowing back his firm's profits into his business. This helped him keep his cost of capital lower while increasing his profit margin, eventually increasing cash and equivalents, which were eventually ploughed back into the business.
If you read the financial statements of any steel company, you will find out that a major chunk of the expenses comprise raw materials and electricity charges. Whereas, if you read the P&L statement of Arcelor Mittal, you will find out that employee compensation as a percentage of expenses is higher than that of the usual steel company. This is because Lakshmi Mittal values human capital more than any other factor of production. He says that his company has 20–25 CEOs who operate independently with the same goals and targets. This operational independence has been a major contributor to AMNS becoming the world's second-largest steel company. Every time he undertakes an acquisition, he calls people from every possible department, comprising legal, financial, HR, marketing, operations, etc. His team undertakes a complete due diligence that tries to find solutions for various problems that the company they are about to acquire faces, and then goes for the kill.
Just like Mr. Tata, Mr. Mittal shares a close relationship with his shop floor workers and managers. His charismatic personality has helped him gain and maintain great political and business relations. In 2005, he acquired International Steel USA. Then came the most thrilling acquisition that Mittal Steel undertook. This was the acquisition of Arcelor Steel for an astonishing amount of $33 billion. It wasn't the price that gave shock, but the fact that a competitor firm that was twice the size of Mittal Steel was being acquired. Eventually, he did acquire the firm, forming the world's largest steel company, Arcelor Mittal Steel. His next masterstroke was the acquisition of Essar Steel of India in 2017 for Rs 42,000 crore. This was again through IBC. He got Essar steel for pennies. Today, his company has operations in 49 countries. I am talking about operations, not presence. Basically, there are 49 countries where his company has a steel mill and requires mines. This is a crazy amount of expansion.
He didn't stop there. After acquiring Essar Steel, he came up with a joint venture with Japan's Nippon Steel, forming an even bigger organization called Arcelor Mittal and Nippon Steel, AMNS. Mr. Mittal has been quoted saying, "I buy the bleeders and turn them into goldmines, and then my competition bleeds." A guy who came from a small village in Rajasthan. A man shared a house with 20 relatives. A man who was bullied for not being able to speak English and solve math. A man who had limited resources, but unlimited courage today holds the title of the Steel Prince of the World, has powerful political connections ranging from Japan to Canada, and lives in a mansion that is no short of a fairy tale. The story of this ambitious middle-class boy is the epitome of self-belief and highlights the power of a dream. Just dreaming isn't enough. You need to put in the work in order to convert those dreams into reality. Perhaps someday a finance enthusiast will write a blog about my story as well.
Today, this man is 73 and is showing no signs of slowing down. In January 2024 when Gujrat hosted the world's investment forum, Arcelor Mittal committed not one, not two, but $15 billion worth of investment. He also said that Gujarat will have the world's largest steel plant with a production capacity of 24 million tons. Just to give you an idea of the scale, India's current biggest steel production plant belongs to JSW Steel in Vijayanagar, with a 12 MT production capacity. After all the things that I have read about Mr. Mittal and heard from fellow steel enthusiasts, if Mittal promises, then he will even die in the process of making it a reality.
To learn more about his way of doing business, I would highly recommend you all reading his biography, Cold Steel.
Happy Investing.
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