Plan to streamline biz; hunt for investors on: VISA Steel

VISA Steel plans to consolidate and streamline its special steel, ferrochrome and coke business arms into SPVs (special purpose vehicles) that will unlock value for shareholders.

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In an interview to CNBC-TV18, vice-chairman and MD Vishal Agarwal adds that the company is looking for strategic investors to help the company expand its special steel capacity from the current half-a-million tonne to 1 million tonne.

Below is the edited transcript of the interview on CNBC-TV18.

Q: What does this process of restructuring entails and by when will it be completed?

A: The business arms at VISA Steel are: special steel, ferrochrome and coke. We have restructured our coke business. We have subsidised our coke business into a new joint venture and diluted 49 percent stake to SunCoke Energy, US and raised Rs 350 crore of the Visa Steel level. Visa Steel continues to hold 51 percent in VISA SunCoke which is a joint venture company. This transaction was completed at the end of March.

Q: According to the BSE press release, the reason for the restructure of the coke business was due to a possible induction of a strategic investor. What are the possibilities of inducting an investor and what sort of strategic investor are you looking at?

A: As the special steel arm is a significant part of VISA Steel, we are evaluating the option to also subsidise the special steel business similar to what we have done in the coke business and bring in a strategic investor who can then help us to expand the capacity from the current half million tonne to one million tonne.

So, we are evaluating different options to also consolidate that business into a separate special purpose vehicle (SPV) and looking at various options of getting in strategic partners.

Q: Your quarterly earnings are in the negative. Can you explain the exceptional item that you declared? Do you expect to see earnings turnaround?

A: The exceptional item is really a profit that has come by the sale of the 49 percent stake—the difference in the book value and what the price is — is what we have realised. So, net-net on a full-year basis we recorded a revenue of about Rs 1,193 crore with a loss of Rs 91 crore. So we pulled back from where we were in the first nine months.

Going forward, the situation shows signs of improving. Coking coal prices have already dropped significantly and going forward, we expect domestic iron ore to also cool over the next few months. There is a lot of iron-ore-pallet capacity which is coming on stream in Orissa. So we believe that as iron ore prices correct, it will be a considerable positive for steel makers and restore margins in the steel business.

Q: What about the ferrochrome joint venture with Baosteel?

A: VISA Steel has a 50,000-tonne ferrochrome plant with a 75-MW captive power unit. The joint venture with Baosteel has added another 100,000 tonne of ferrochrome capacity and is likely to come on-stream from the end of June. We expect production to gradually improve over the current financial year. So the ferrochrome capacity of VISA Steel and VISA-Bao combined will be at 150,000 tonne and this will make us one of the top three ferrochrome producers in the country.

Q: How do you plan to fund this capacity expansion?

A: The expansion was already funded via equity a couple of years ago and is close to completion. We are trying to see how to consolidate the coke, special steel and ferrochrome businesses into different SPVs and unlock value for shareholders.