THE BIG PICTURE IS THAT INDIA REBOUNDED FROM THE STEEL SECTOR SLOWDOWN
(ARISING OUT OF THE GENERAL MELTDOWN) FASTER THAN MOST COUNTRIES AND
ADHUNIK METALIKS STRENGTHENED ITS BUSINESS WITHIN INDIAS STEEL SECTOR.
The relatively small picture is that Adhunik Metaliks reported a 10.51%
growth in consolidated revenues and 83.68% in consolidated EBIDTA
2009-10 over the previous year.
Clearly, the best is yet to be at the Company for two basic reasons:
- Our growth is higher-than the global-average growth in the Indian
steel sector
- Various initiatives are been taken by Adhunik Metaliks to build value
Reviewing 2009-10
Adhunik Metaliks was created as a steel Company but thereafter
responded entrepreneurially to emerging opportunities and diversified.
The result is that today we are effectively three companies in one
steel, mining and power.
Steel: Adhunik is positioned as a mid- sized integrated steel player
with all the corresponding advantages arising out of its prevailing
size focus, value- addition, quick implementation and the managerial
bandwidth required to sustain the business. We are one of the most
extensively integrated secondary steel companies in India today. We
possess a single-location alloy steel capacity (0.45 MTPA) dedicated to
the growing needs of the auto, power, oil and engineering segments. We
are evolving our presence from mere commodity manufacture to
value-added products (from 40% of our revenues to 70%). We received
approvals from five Tier I and II automobile OEMs. The result is that
our EBIDTA of 20.39% in 2009-10 was higher than the prevailing industry
average.
Mining: We invested in mines for captive use and merchant sales. We
commercialised mines belonging to Orissa Manganese & Minerals Limited
over the last year, mining 1.15 mn tons of iron ore and 0.14 mn tons of
manganese ore. We invested in a jigging plant and ore washery to
utilise wastes. Our merchant mining contributed 16.47% of consolidated
revenue.
We expect to commence operations from the Kulum iron ore mine from the
second half of 2010-11; we expect to commercialise our captive coal
mine at Talcher in two years. Going ahead, we are investing in a 1.2
MTPA pellet plant along with iron-ore beneficiation plant to utilise
the fines and low-grade materials.
Following the establishing of these plants, we intend to beneficiate
these fines and low grade materials and convert them into iron ore
pellets for merchant sale. We believe that this initiative will extend
our value chain. We have made substantial progress on the
project by placing all the major orders for plant and machinery. The
project is in full swing and expected to be commissioned by September,
2010.
Power: We invested in power- generation from the perspective of captive
use and merchant sale. While captive units were created within the
Company, we are implementing the large plants (dedicated to merchant
sales) under a subsidiary. We possess 34 MW of captive power generation
capacity (as on March 31, 2010) and expect to scale it to 80 MW by
October 2012. On the other hand, we embarked on the first two phases of
the cumulative 540 MW power plants dedicated to merchant sale (out of
the planned 1,080 MW). We were allocated a coal mine (JV with TATA
Steel), which will secure our resource needs; we secured back-to-back
coal linkages for the entire 540 MW capacity from Central Coalfields.
On the other hand, we entered into a purchase agreement for the first
100 MW with Tata Power Trading Company Limited and expect to commission
the first unit of 270 MW by January 2012 and the second unit of 270 MW
by April 2012. We intend to enhance our capacity following the firm
procurement of captive resources.
Derisking our business
We intend to secure Rs,600 cr of cumulative investments in our steel,
power and mining businesses through extensive derisking.
One, our extension into these spaces - value-added steel products,
mining (captive and merchant) and power generation (captive and
merchant) - will evolve us into a high-margin steel and resource
organisation.
Two, by 2015, we expect to increase steel capacity to a million tons
per annum with a dominant proportion of our capacity dedicated to the
value- added segment. The combined use of the blast furnace and
electric arc furnace through the virgin route (as opposed to the
conventional use of scrap) will reduce our power consumption. Our
growing focus on supplies to the automobiles, oil and gas, power,
railways and construction sectors will enhance realisations.
Three, we possess a complement of directly-owned mines (iron ore and
coal) and subsidiary-owned mines (iron ore and manganese ore) with a
flexibility to use resources for our captive use and merchant sale. The
result is that these mines will not just enable us to save cost but
also generate high-margin revenues.
Four, we intend to market 50% of the power (through our subsidiary)
that we generate through long-term contracts and the rest through spot
sales. The margin-accretive power business is expected to generate
significant tax-free cash flow, which we expect to re-invest in
Chattisgarh, Orissa and Bihar (1,000 MW each) power projects (signed
MoUs in 2009-10).
Five, we mobilised around Rs, 700 cr of debt in the last four years to
fund our expansion and have started repaying it through internal
accruals. We repaid Rs, 100 cr in 2009-10 and intend to repay Rs, 90 cr
in 2010-11, which will strengthen our debt-equity ratio from 1.98 in
2009-10 to 1.70 in 2010-11.
Caring for people
As a responsible corporate, we will continue to invest in developing
our people. We are working in the areas of educational development,
womens empowerment, infrastructure development, income generation and
sports promotion. We established an NGO called Nav Nirman Sanstha to
carry out development initiatives for the economically underprivileged.
We adopted six villages near our manufacturing units and mines. During
2009-10, we invested Rs, 2.5 cr in community initiatives.
At Adhunik Metaliks, the sum of these initiatives will be progressively
reflected in one number: the gradual reduction in our resource
purchases and a growing increase in resource use from captive means.
This increase will evolve our personality into a relatively non-cyclica
value-added steel products business that protects its bottomline in the
most challenging markets and maximises returns during favourable times.
Regards,
Manoj Agarwal
Managing Director
