Prince Mathews Thomas
Moneycontrol News
With its acquisition of Bhushan Steel nearing completion, Tata Steel can now formally wear the crown of the largest steelmaker in India. But it's a glory that its close competitor, and now number two, JSW Steel will be eager to take back. And the Sajjan Jindal-company may well do that within weeks.
Bhushan Steel's annual capacity of 5.6 million tons takes Tata Steel's total volume to 18.6 million tons, around half-a-million tons more than JSW Steel's capacity of 18.1 million tons.
To be sure, a few more formalities are yet to be completed as Bhushan Steel's erstwhile promoter Neeraj Singhal and operational creditor Larsen & Toubro have approached the National Company Law Appellate Tribunal (NCLAT), contesting the beleaguered steelmaker's sale.
But for most practical purposes, the deal is as good as done.
However, Tata Steel runs the risk of losing its crown soon, as JSW Steel is finishing off the last of the formalities in its acquisition of Monnet Ispat, which like Bhushan Steel was referred to the National Company Law Tribunal (NCLT) last year.
The Competition Commission of India has approved JSW Steel's bid for Monnet Ispat, and the company is now waiting for a final approval from the NCLT.
Monnet Ispat's facility includes a mill that can produce 1.5 million tons of steel a year. This will take JSW Steel's total capacity to 19.6 million tons, and over take Tata Steel.
But even if JSW Steel manages to wrest the crown away from Tata Steel, it may not wear it for long. The pecking order may change yet again.
Tata Steel continues to be in the running for Bhushan Power & Steel, another bankrupt company that was founded by the same Singhal family that owned Bhushan Steel.
Bhushan Power & Steel can produce 3.2 million tons of steel a year. If Tata Steel does get its hands on the company, its capacity will go past the 20 million ton-mark, and it will be well clear of JSW Steel in the race to the top.
But UK-based group Liberty House stands in Tata Steel's way, having submitted a late bid for Bhushan Power & Steel. While the race is still on, Liberty House's bid is now higher than that of Tata Steel, which is not happy that the UK-company was allowed to make a late entry.
Tata Steel had initially emerged as the favourite for the troubled steelmaker after outbidding JSW Steel.
So the title of the largest steel manufacturer in India could either be with Tata Steel or JSW Steel by the end of this year.
Expansion plans
The competition between the two largest steelmakers in the country, however, extends to beyond a year or two. Both companies have lined up ambitious expansion plans.
JSW Steel plans to increase its capacity by nearly 40 percent in two years, taking its volume to 24.7 million tons by 2020.
The company's capacity could even reach the 40-million-ton mark in another three years, as it plans to further expand capacity at its facilities at Vijayanagar in Karnataka, and has drawn up a plan to set up a new facility in Odisha.
But given the challenges in setting up greenfield facilities in India, it would be prudent to not count the proposed new plant.
Tata Steel has also announced plans to expand its capacity to 26 million tons a year by 2022, not including the capacity addition on account of the Bhushan Steel acquisition.
Domestic market
It is not just the competition that is pushing Tata Steel and JSW Steel to spend thousands of crores of rupees to expand capacity. The two companies are banking on the promise being shown by the Indian industry.
India's total domestic steel manufacturing capacity currently stands at around 120 million tons a year, which is expected to more than double to 300 million tons a year by 2030.
Even if one goes by the more conservative estimates of 250 million tons a year, the country would need many more steel plants to meet the rising demand.
Interestingly, Tata Steel and JSW Steel may face some competition from Steel Authority of India (SAIL). The state-owned steelmaker may finally complete its oft-delayed expansion programme within the next two years.
When the expansion gets completed, SAIL's capacity will be around 21 million tons a year, which will propel the company ahead in the race to the top of the pecking order.
The favourites, however, are still Tata Steel and JSW Steel.
International shores
Interestingly, even as one is making further inroads in the global market, the other is shedding its international baggage.
JSW Steel recently announced the acquisition of Aferpi, the second largest steelmaker in Italy. It is also adding capacity at its plate mill in the US.
Tata Steel, on the other hand, is looking to focus on the domestic market, more than 10 years after it made bought UK-based steelmaker Corus. It is now in talks with Thyssenkrupp to merge much of its remaining units in Europe. Though the proposed merger is delayed, it is expected to be completed by the end of this year.
International plans aside, the big-wigs of the Indian steel industry will continue their focus on the domestic market.
But who will eventually take the crown, is a tough call.
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