JFE Steel's stake buy in JSW a win-win for all: Experts

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JFE Steel's stake buy in JSW a win-win for all: Experts

Japenese steel maker JFE Steel is looking to acquire 10% stake in JSW Steel for approximately Rs 1,560-2,600 crore. The Japanese steelmaker aims to build a supply base for Japanese carmakers such as Toyota Motor Corporation and Nissan Motor Company, which plan to start manufacturing in India.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS JFE, JSW to tie-up on car steel in India JSW Steel, JFE to consider steel plant in West Bengal ALSO READ See latest News about JSW Steel See previous management interviews See what other Experts & Brokerages are saying about JSW Steel JSW Steel BSE | NSE 31/05/12 Are Mutual Funds betting on JSW Steel?

Japenese steel maker JFE Steel is looking to acquire 10% stake in JSW Steel for approximately Rs 1,560-2,600 crore. The Japanese steelmaker aims to build a supply base for Japanese carmakers such as Toyota Motor Corporation and Nissan Motor Company, which plan to start manufacturing in India.

The deal is a win-win for both parties. JSW Steel gets its much needed cash infusion. On July 7, shareholders had approved the raising of about Rs 4,775 crore through a qualified institutional placement. At that time, Sajjan Jindal, its Vice-Chairman and Managing Director, stated that the funds raised would be used to retire the company's debt of about Rs 14,500 crore. Neeraj Shah of Centrum Broking feels the deal will ease the pressure on the company and it can now focus on its capex programme. Goutam Chakarborty of ICICI Direct too feels the company can use this money for expansion rather than going for any fresh debt. 

The Japanese steel maker also gets access to cheaper and better raw materials. Shah adds that in Japan there is not much to invest. "India is where the future lies. All global steel companies will have interest in India. It is gaining a foothold in the Indian market."

Seconding Shah, Chakarborty says the Indian steel industry has been on a strong growth path. "Global players are always looking for a pie of that and they are coming because of that to India. ArcelorMittal has done that with Uttam Galva. Fresh or Greenfield expansion may be a problem because of the land and other issues. So, global players can use this kind of ways to get into the Indian markets."
Shah wonders aloud if in future there would be some arrangement between JFE and JSW in the latter's new greenfield venture. Chakarborty too feels the deal could also entail a technical collaboration between these two peers.

Impact on the steel sector:
Shah feels this deal will lead to the re-rating of the entire steel sector.