JSW Steel has chalked out a turnaround plan for its recent buy Bhushan Power & Steel that looks to lower the latter's cost of production and expand capacity. The turnaround is an imperative for the eventual merger of the new subsidiary with its parent.
"We have always followed the strategy - turnaround and merge," Seshagiri Rao, Jt MD & Group CFO, JSW SteeL, told Moneycontrol.
JSW Steel had closed the acquisition of BPSL on March 26, in a move that made it the largest steelmaker in the country. The Sajjan Jindal-led company has paid Rs 19,350 crore to the financial creditors of BPSL.
BPSL has an annual capacity of about 2.5 million tons in Jharsguda, Odisha, taking JSW Steel past Tata Steel's India capacity of 19.63 million tons a year. JSW Steel's capacity now stands at 20.5 million tons a year.
BPSL had a turnover of Rs 8,635 crore as on March 31, 2020.
Rao added that the plan is to turnaround BPSL's operations in two years, from the time Supreme Court rules on its petition for immunity from a probe being conducted by the Enforcement Directorate(ED). The ED is investigating money laundering charges against BPSL's former promoters, and in the process attached company assets worth over Rs 4,000 crore.
The success of the deal itself rides on the ruling by the Apex Court. If the Court does rule against JSW Steel, the company will get back its money from the banks, and hand over the keys of BPSL.
The turnaround plan
"There are many projects (at BPSL) that are half completed or need to be taken up. These projects will substantially lower the cost," Rao said.
These include a coke oven plant that is not yet ready. Instead, BPSL buys coke, which is used as a reducing agent in steelmaking, from the market. Also, the plant in Jharsguda doesn't use the pulverized coal injection (PCI) method, which could otherwise enable use of cheaper coal, instead of coke.
"If the plant uses PCI, then cost will come down," Rao added.
Also in the works is to expand BPSL's annual capacity from the present 2.5 million tons, to 4 million tons. This too, added Rao, could be done within the two-years timeline, after the court order.
JSW Steel had the same strategy, of turnaround and merger, with Ispat Industries, which it had acquired in 2010. In 20 months, Ispat was renamed JSW Ispat and merged with the parent. The process is on for Monnet Ispat, another company that JSW Steel had bought from bankruptcy courts. Sources said Monnet Ispat, which has been renamed JSW Ispat Special Products, has turned EBITDA positive.
Presence in the east
BPSL gives JSW Steel a presence in the eastern markets of the country. Till now, its units were present either in the south or west. Through Monnet, which has a unit in Chhattisgarh, JSW Steel entered central India.
Rao pointed out that JSW Steel otherwise incurs high freight cost to cater to its customers in eastern parts. "Through BPSL, entering into the east is possible and we have resources that are available next door. There is a great synergy between the two," Rao added.
JSW Steel had emerged as the most aggressive bidder for iron ore mines that were auctioned in Odisha.
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