JSW Steel eyes overseas for acquisition
The Sajjan Jindal-managed JSW Steel is exploring options for acquiring a one-million-tonne per annum cold rolling mill either in Eastern Europe or in the US to increase production of high-value products.
By Prince Mathews Thomas, TNN |
MUMBAI: The acquisition story in the Indian steel sector is getting active. The Sajjan Jindal-managed JSW Steel is exploring options for acquiring a one-million-tonne per annum cold rolling mill either in Eastern Europe or in the US to increase production of high-value products.
JSW finance director Seshagiri Rao declined to comment on the likely value of the proposed buy, but told ET that the company was looking at overseas acquisitions to improve its product mix. “The share of value-added products in our product mix has increased to 53% from 38% last year. We are looking at overseas acquisition as one of the ways to further improve the mix,” Mr Rao said.
Analysts said that a one-million-tonne galvanised steel plant in the Europe or in the US could currently be valued anywhere between Rs 300 crore and Rs 500 crore. Among its portfolio of value-added products, JSW at present produces cold-rolled sheets and coils for the auto industry and galavnised sheets and coils for the housing and infrastructure sectors.
“The European market is strong on value-added long products like blanks used in the auto industry, while products like TMT bars are in demand in the US construction sector,” said industry analysts.
This development comes close on the heels of an announcement by Tata Steel that it was looking at buying steel units in Indonesia. Last year, the Pramod Mittal-promoted Global Steel Holdings, that also owns Ispat Industries, had bought out Bulgaria’s largest steel maker, Kremikovtzi, in a deal worth $300m.
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Europe and the US are the major markets for value-added products such as galvanised steel but don’t have enough units that produce hot-rolled coils, the main raw material. “They either sell their cold-rolled units or go for tie-ups to improve businesses,” added Mr Rao. JSW is in the middle of a Rs 5,000-crore expansion programme to increase its capacity to 7-million tonne per year by 2009. The OP Jindal group company is also eyeing coal mines in Australia, Canada and Mozambique. “We may either buy a stake or go for an equity tie-up and then manage the mines,” said Mr Rao. JSW recently said that it was increasing promoter’s shareholding from the current 45.15% to 49.93% over the next 18 months.
“The board has decided to allot 1.5 crore warrants (9.56% of the existing paid-up equity capital of the company),” said Sajjan Jindal, vice- chairman and managing director. While accepting that the move comes at time when spate of mergers and acquisitions are taking place in the global metals sector, Jindal added, ”It is better to be safe rather than be sorry.”
Recently, Tata Steel, India’s largest private steel manufacturer had announced that it would be increasing the promoter’s stake from 26% to 33%.
JSW Steel on Tuesday posted a 17% drop in its net profit at Rs 170.3 crore for the quarter ended June 30, ‘06. Its revenue increased 2% to Rs 1,569 crore. The result led to a 0.8% drop in the company’s shares to Rs 235.9 on the BSE.
“Low steel prices were balanced by a dip in cost of production and coal consumption. But the demand for steel will remain buoyant in India and international markets,” said Mr Jindal.
“However, increased volume of export of steel products from China and a drop in domestic prices of steel in the Chinese market are likely to exert some pressure on steel pries in the short-term,” he added.
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