No interest in buying Global Steel Philippines: Uttam Galva

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Uttam Galva See previous management interviews See what other Experts & Brokerages are saying about Uttam Galva Uttam Galva BSE | NSE 29/05/12 Are Mutual Funds betting on Uttam Galva?

Uttam Galva has no interest in Global Steel Philippines, states Ankit Miglani, deputy managing director of the company. Questions of whether Uttam Galva is interested in the company arose when news reports suggested that the Miglani family, which is a key promoter of Uttam Galva , is looking to buy Global Steel Philippines.

Miglani further adds that the Uttam Galva has no synergies with Global Steel. "If we decide to proceed with this opportunity, there will be completely different business plans with completely different risk reward profiles," he said.

Speaking about the steel sector on the whole, Miglani has a very negative view. "Inventories are very low and stocking has not yet restarted has caused apparent demand to drop," he explained. However, he says that the limited supply of iron ore in the country and kept the price of the raw material pretty stable, which has helped them.

Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: The family is buying Global Steel Philippines, not Uttam Galva?

A: Absolutely. It is not confirmed even to that extent. I can state firmly that Uttam Galva Steel Limited is not interested in any such opportunity at this point.

As far as family is concerned, I would not want to comment on the progress at this point. The family is firmly committed to the steel industry, so we are exploring all avenues in growth as far as steel is concerned. But I cannot comment in particular on this deal or this transaction at this point.

Q: Would there be any synergies or anything that will accrue to Uttam Galva because of future company having the same promoter? Is there any synergy between these two entities with or without that deal?

A: There are absolutely no synergies in the two entities, they are completely different markets. They have similar products, but there is absolutely no relation in terms of markets or raw materials or anything of that sort. There will be completely different business plans with completely different risk reward profiles, if we decide to proceed with this opportunity.

Q: But they also make cold rolled coils from hot rolled coils or galvanised sheet?

A: Yes.

Q: What is the sector looking like right now? There are some reports that Chinese steel production could begin to pick up in the first quarter of the next calendar year and that could help a lot of the Asian prices. Are you expecting steel prices to go up in the near-term?

A: If the Chinese are thinking of increasing production, they are obviously seeing something that we are not seeing. What we are seeing quite frankly is a drop in apparent demand. We are seeing growth in global real demand, but the fact that inventories are very low and stocking has not yet restarted has caused apparent demand to drop. It is putting pressure on global steel companies to cut production or not increase production and this should cause stabilization in prices. We are hopeful that restocking activity next quarter could improve prices to some extent but we are not expecting any major volatility.

Q: Do you think iron ore prices would remain in the range of USD 130-150 because of weak demand outlook or could there be an uptick in iron ore prices as well?

A: The range you have mentioned seems to be a fair range from next year; we don't expect much volatility beyond that range. USD 150 is a level which is the cost of production of iron ore in China, so we don't see it dropping from that level and we don't see a demand strong enough to take the prices above USD 150 either. So we see a relatively stable band next year for prices.

Q: What about raw material prices right now for Uttam Galva? We understand that supplies from your domestic sources, largely Esser Steel in Gujarat or Ispat, is becoming a problem because of the domestic availability of iron ore running out as well your imported HRCs if any would become expensive because of the rupee?

A: Absolutely, we are facing both issues. There is a shortage of local supply because of the iron ore problem and the cost of imports has gone up because of the depreciation of the rupee. However, steel is overall a dollar a based industry so within a lag of a month or two the dollar effect always compensates.

But the fact is that there is a shortage of iron ore in the Indian market, which has prevented a complete freefall of prices here. The fact that supply is limited has curtailed the price drop, otherwise it would have much more severe and painful and that has helped us instead of haunting us.

Q: How much is the price drop that has been witnessed so far?
 
A: International prices have dropped by something like USD 100-150 whereas Indian prices have moved in Rs 2,000 band. So because of the rupee and iron ore situation, the actual nominal price in rupee has not moved that much.

Q: There is a chance that Maharashtra will raise the duty on captive power plants. Are you seeing some kind of increase on your cost because of that?

A: It is hard to say because we don't have clarity on what the policy proposed is or what the policy executed will be. There are a lot of talks going on; some people are talking about clearing open access for Maharashtra which should make life a bit easier. There are rumours of increase in import duties and there are rumours of increase in ad hoc surcharges. So quite frankly, it's completely opaque at this point and it seems to be a complete mess.

Q: Any foreign loans due to be repayment? What is outstanding on foreign loans?

A: About 30% of our debt is in dollars, but it doesn't affect us that significantly because it gets compensated as our export margins expand where the dollar appreciates.

Q: So no loans due just now?

A: I am not quite sure exactly what value it is, but it's not something that is abnormal.