New capacity to go on stream by March: Bhushan Steel

Taking a cue from trends globally, Bhushan Steel is looking to hike prices by around Rs 1,000/tonne by this month. The company, which mainly produces secondary steel such as cold-rolled coils, galvanised coils, colour-coated coils, has a production capacity of around 2.5 million tonnes per annum from its three manufacturing facilities in Uttar Pradesh.

The company is looking to expand capacity further to 5.2 million tonnes per annum.In an interview to CNBC-TV18, Neeraj Singal, MD, Bhushan Steel said, " New capacity is likely to come on stream in March."

He further said that the company which has debt of around Rs 20,000 crore is looking to de-leverage its balance sheet.

The company has earlier said that it is in the process of raising around USD one billion.

Below is an edited transcript of Neeraj Singal's interview on CNBC-TV18

Q: A lot of your peers like JSW and Essar, have increased prices in January 2013, what about you? Can you increase prices at this point in time? Does the demand scenario allow that and by how much? If that is the case, would it be sustainable for you?

A: Definitely, we look at price increase for this month. We hope that we will be able to increase prices by Rs 1,000 a tonne because there has been a while since we have been able to increase prices in last year. Going forward, this year seems to be much better and there will be a price increase this month.

Q: If you increase prices then you are now at par with imported steel prices. So is that the cap now? Can you do anything further?

A: In the last 15-20 days, globally, the steel prices have increased. China has increased by about USD 40 and except Europe everywhere else there is a better outlook for steel. China has already increased the prices so there is a gap of about USD 40-50 between the imported coils and the domestic prices. So there is a clear case of a price increase, maybe Rs 1000 this month and Rs 1000 by next month or March. There is a definite scope of increasing the prices.

Also Read: Tata Motors introduces 4-year warranty on heavy truck range

Q: Will this help margins because there is a little bit of levy way coming from China increasing prices. Is there a minor uptick coming in coking coal and iron ore prices? Will the global prices have an impact on your raw material cost?

A: It still makes a stronger case for price increase because now iron ore prices and coking coal prices have started looking up, but last year was very depressed and the steel prices fell down more than the raw material prices.

This year, going forward, the steel prices have to increase but the raw material price is stable. I foresee that there will not be much increase in coking coal and iron ore prices because Europe and America being down, that way the iron ore and coking coal price, I don’t see very high increase in prices of those commodities.

_PAGEBREAK_

Q: You have some amount of capacity coming on board in Orissa at this point in time. What sort of capacity would it bring for Bhushan Steel as a whole and how much utilisation do you expect based on what the demand scenario is looking like at this point in time and how much do you envisage it to increase?

A: We presently have cold roll facility of about 1.4 million tonnes which is virtually operating at full capacity at about 100 percent. Our new steel plant which started in late 2010 is 2.2 million tones and is operating at about 75-80 percent. By March 2013, we will be commissioning our blast furnace which is a 3 million tonnes expansion and would take our capacity by end of March 2013 to about 5.2 million tonnes.

The cold rolling capacity would go up to about 2 million tonnes. So as on April 1, we should be 5.2 million tonnes of hot rolled coil and 2 million tonnes of cold rolled coils and about 0.4 million tonnes of petroleum pipes and API pipes.

Q: Is there any fear of iron ore mining in Orissa coming to a standstill or getting curbed because of the bans that we saw in Karnataka and Goa due to Justice Shah Commission enquiries?

A: Whatever Shah Commission had to do with Orissa has already been done. They had lot of enquiries and Shah Commission was there in Orissa for quite some time. Lot of mines have been closed. Mines where the lease was over has been closed and the government is looking at renewing them or canceling them and taking it to Orissa Mining Corporation (OMC).

The government of Orissa is doing a good job and there should not be a problem in Orissa for iron ore .This is because the Orissa mining is closely controlled by the Orissa government and the OMC which is Orissa Mining Corporation is a major player. I don’t foresee any raw material crisis and iron ore crisis in Orissa. Going forward, the Orissa government is looking at opening more mines through OMC.

Q: Fines have been imposed on 196 mining lease holders in Orissa for excess mining. Will all this tantamount to fresh mining being stopped or getting restricted? Are you quite confident that iron ore won't be an issue?

A: I don’t foresee that in Orissa, iron ore would be a problem because on the whole the government of Orissa has already come out with a new notification that 50 percent of the iron ore mined in Orissa has to be consumed by Orissa steel plants. Earlier, 70 percent or 80 percent of the iron ore of Orissa was going out of Orissa which is also a good thing that they are trying to protect the industry which is within the state.

Q: For the 2.5 million tonne expansion that comes on stream in March, do you have a reasonable assurance of iron ore?

A: Definitely, because it is more or less 85 percent based on fines and fines are available in Orissa, rather there are no consumers of fines in Orissa because most of the plants in Orissa are sponge iron based. But we have gone in for a blast furnace technology and there we consume fine. I don’t foresee any problem in iron ore fines availability in Orissa.

_PAGEBREAK_

Q: What exactly is the balance sheet looking at this point in time? Is there any equity issuance on the cards which would de-stress your balance sheet because there are some concerns with regards to the high levered position that you currently have?

A: We are on the completion stage of a 5.2 million tonnes steel plant and have downstream of about 2.4 million tonnes. So there were some concerns about the debt in the company for which we are looking at some way of deleveraging. Going forward we may look for some equity placement.

Q: What does your debt stand at this point?

A: It is roughly in the range of Rs 20000 crore.

Q: Can you give me an idea of FY14 revenues as well as earnings, since such a huge plant will begin production?

A: As far as 2013 is concerned, we should have revenues of around Rs 12,000 crore. But in 2014, we should have revenues between Rs 18,000 to Rs 20,000 crore. The ramp up of the new plant would pick up. I am considering only 70 percent.

Q: By how much will the interest and raw material expenses go up? How much earnings will grow?

A: Once the revenue goes up, the raw material should also go up for sure and interest will be there, because once it gets capitalised there would be some interest on that.

Q: What is some interest? What is your interest for the current year, would it be at Rs 120 crore or thereabouts?

A: No. It will be less than that.

Q: Is there any sort of discernible time line in terms of equity issuance or any sort of fund raising that we could expect from the company?

A: We are going in for the rights issue for sure, which will come up in the month of January itself. Then we will be looking for a public placement also.