Varun Inds plans to set up Rs 230-cr steel unit in Jodhpur

MUMBAI: Varun Industries, maker of steel consumer goods, plans to build a 120,000-tonne stainless steel plant at a cost of Rs 230 crore in Jodhpur as part of its backward integration programme. Mumbai-based Varun, which is one of the largest stainless steel utensils maker, also with interests in mining, expects to begin work on the proposed plant after a financial closure scheduled by March. “It’s expected to be operational from 2011,” group advisor Rathnakar Hegde told ET.

The manufacturing plant is aimed at securing the raw material for products that the company makes and also to counter the volatility in prices. Prices of steel have been seeing strong fluctuations, almost doubling before the liquidity crisis took the bottom out. “Too much fluctuation in raw material prices eats into our profitability. At the same time, the quality and supply were a concern,” said Mr Hegde. The company spent Rs 85 crore last year on raw materials.

Under its backward integration plan, Varun Industries will manufacture TMT bars and other steel inputs for the construction industry, besides stainless steel flats. “We want to be a complete steel company and this new plant will help us diversify into other verticals and mitigate risks,” said Mr Hegde. The company’s sales were down 6% at Rs 302.4 crore in the quarter ended September.

Varun Industries plans to borrow Rs 150 crore to meet the expansion plans. The company’s average borrowing cost is 11%. Further, the promoters will infuse about Rs 22 crore through warrants which can be converted into equity shares subsequently, said Mr Hegde. “Rest of the amount will be met by internal accruals and through a QIP or a rights issue,” he added.