Export sales to rise by 25% in 3-yrs: Steel Strips Wheels

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Export sales to rise by 25% in 3-yrs: Steel Strips Wheels

Steel Strips Wheels allotted 5.88% of the company’s equity to Sumitomo Metals at a price of Rs 520. The company has also sold 2.5% stake to Korean firm GS Global, confirmed the MD of Steel Strips Wheels Dheeraj Garg, in an interview on CNBC-TV18.

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Steel Strips Wheels allotted 5.88% of the company's equity to Sumitomo Metals at a price of Rs 520. The company has also sold 2.5% stake to Korean firm GS Global, confirmed the MD of Steel Strips Wheels Dheeraj Garg, in an interview on CNBC-TV18.

"The deal with Sumitomo Metals will give us a global footprint in the South East, Far East and global markets while the deal with GS Global will help us source technologies for the future because this group is involved in various businesses," he said.

He added that the company expected to close FY11 with Rs 800-850 crore in revenues. He also expressed hope to see their export sales jump by 20-25% in the next three-years.

Below is a verbatim transcript of his exclusive interview with CNBC-TV18's Latha Venkatesh. Also watch the accompanying video for more.

Q: You have had a small sale to Sumitomo Metals last week with another sale to a Korean firm. Can you tell us all the equity issuances in the past few days?

A: Sumitomo has been allotted shares last Friday and the deal was done about 45 days prior to that. That deal happened for 5.88% of the company's equity and that price was Rs 520. Our board has just approved an issuance of fresh shares to GS Global, a Korean conglomerate of which 2.5% new shares are to be issued post dilution at a price of Rs 595.

Q: Why this piece meal sale to several people - are they suppliers, are they in any way connected to the company?

A: Sumitomo Metals is the owner of Ring Tech Limited which is one of the largest steel wheel producers in Japan. They have basically invested on behalf of Ring Tech Limited. This is going to give us a global footprint in the South East and Far East Asian markets and also in the global market where we have a very good technical support from Ring Tech.

The GS Global deal is driven by securing long-term steel from the Korean and the Chinese mills where they have a very strong foothold. Plus, the GS Global deal would help us source technologies for the future because this group is involved in various businesses.

Looking at the future for the auto industry, we may look at other possible avenues within the auto industry and they have a very good foothold in those areas. Both these deals are strategic in nature and they augment very well for the company's expansion plan.

Q: But do both these companies only get a dividend from you as and when you declare them or do you have to pay them separately for technology or for a marketing fee if you piggy back on them?

A: They just get a common stock dividend. So far as getting new businesses for the company for example if GS Global is able to get us businesses in Korea then of course there will be a certain fee paid to them. It's on a success fee based formula.

Q: What will the money do for Steel Strips itself? What is the immediate dilution in equity in EPS that you expect in the current year and more importantly what are you putting the money to use?

A: The money is being put for expanding the Chennai facility. We are more than doubling the capacity in Chennai from 2.5 million wheels to 6 million wheels by March 2011.

The GS Global money would be utilized for expanding the capacity in Jamshedpur. Where we just implemented a greenfield project and that capacity is being augmented by at least 60% and we are taking that capacity to 1.6 million wheels. Combined capacity after both these expansions should be close to 16.5 million.

Q: So what can you tell us in terms of revenues in FY11 and FY12 and more importantly margins, since this comes with a capital cost and interest burden?

A: This year we should be doing close to Rs 800-850 crore. Margins would be definitely higher than the preceding year in terms of absolute margin per wheel and going forward we expect margins to improve by 15-20% because of two things - one our increase in truck wheel production and the sales, and our tractor wheel production and also our exports are doubling. All these things increase our gross margins per wheel.

Q: Can you give us some numbers for FY12?

A: We are looking at close to Rs 105 a wheel for FY11 and in FY12 we are looking at close to Rs 125-130 a wheel.