JSW Steel buys Welspun Maxsteel for Rs 1,000 crore

Mumbai: JSW Steel Ltd, India’s third largest steel maker by capacity, has agreed to buy Welspun Maxsteel Ltd (WMSL) in a transaction that values the company at Rs.1,000 crore as JSW seeks to expand production of the alloy.

WMSL, a unit of Welspun Enterprises Ltd, has long-term debt of Rs.1,087 crore, Welspun Enterprises said in a BSE filing on Monday.

JSW linked the acqusition to its goal of enhancing its steel production to 40 million tonnes per annum (mtpa) in the next decade, from 14.3 mtpa now.

“WMSL is situated in close proximity (within 40km) to company’s Dolvi unit (in Maharashtra), offering complementary infrastructure and location to augment the current envisaged expansion at Dolvi. In line with this objective, JSW wishes to acquire the entire equity shares of WMSL,” said JSW Steel.

WMSL has an installed capacity of 900,000 tonnes per annum at its gas-based plant, with a captive jetty and a captive railway siding, at Salav village in Raigad district of Maharashtra. The captive jetty, with an existing capacity of 2.5 mtpa, is located 1.8km from the plant, while the captive railway siding is located at Roha junction, 35km from the plant.

“This acquisition is value-accretive to JSW Steel due to synergies in supplying surplus pellets to Welspun Maxsteel and use of DRI (direct reduced iron) from WMSL in company’s steel-making operations at Dolvi plant,” said Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel.

WMSL also has approximately 480 acres of vacant land available for future expansions.

“The company (JSW Steel) has surplus pellets in its subsidiary Amba River Coke Ltd which will be supplied to WMSL. The cost of production in WMSL is expected to come down due to replacement of significant portion of its bought-out pellets with captive pellets. The DRI produced by WMSL shall initially be used partly by the company’s Dolvi unit, and would be consumed in the entirety post completion of its ongoing expansion to 5 mtpa,” JSW Steel said in its statement.

EY and Luthra and Luthra carried out financial and legal due diligence for JSW Steel on the transaction.

JSW Steel Ltd gained 0.14% to Rs.1276.50 on Monday on BSE, while the exchange’s benchmark Sensex gained 1.1% to 26,390.96 points.

In 2010, the company acquired debt-laden Ispat Industries Ltd for Rs.2,157 crore.

“The land and the port and its integration with JSW’s Dolvi unit seems the main strategy behind this acquisition,” said Goutam Chakraborty, a metal analyst at Emkay Global Financial Services Ltd. “This acquisition, together with that of Ispat one made earlier, will help JSW strengthen its position in the western Indian market.”

Chakraborty said the 480 acres of free land could be used for brownfield expansion such as putting up a pellet plant or mills for making value-added products such as a bars, wire rods and rails and that would be value-accretive since JSW has been focusing on producing more of the high-margin products.

“This is useful especially at a time when land is elusive and greenfield ventures are difficult. This is a strategy they have enforced to overcome the iron ore problems in Karnataka where their main plan operates,” Chakraborty said.

The logistical bottlenecks in the country have also prompted JSW management to invest in facilities near the ports from where shipping in raw materials and shipping out exports becomes easier.

Sajjan Jindal-promoted JSW Steel is looking for other strategic acquisitions too; in Italy, it has bid for parts of the insolvent Lucchini SpA which it can use as a processing centre to sell to Europe at a low cost.

The company has also bid for UK steel trader Stemcor’s Indian assets that has mines and a plant in Odisha for $750 million, but talks have not moved further since the January bid.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.