New Delhi: Processed steelmaker Bhushan Steel expects its net profit to grow by a quarter in 2010-11 on strong demand and improved margins due to backward integration, its chief financial officer said on Wednesday. “January onwards there will be a sharp pick-up in demand as far as the auto (sector) is concerned. So it will push the prices little high,” Nittin Johari told Reuters in a telephonic interview.
Bhushan Steel sells 35-40% of its produce to automakers and another 15-20% to consumer durables companies.
Johari said higher demand for cars and increased government spending will enhance steel demand in the Jan-March quarter leading to “some increase” in prices.
Johari said sales volume is expected to rise 30-40% in the seccond half of FY11 and its 1.2 million tonnes processed steel plants are working at over 100% capacity.
The input cost though would remain stable as a slowdown in China will keep raw material prices in check, Johari said, adding that backward integration at Bhushan Steel will help expand margins in the second half of 2010-11 over the first half.
The company has set up a primary production facility for hot-rolled steel coils to be used as raw material for its processed steel manufacturing plant, reducing costs.
The proportion of captive HR coils will increase to 60% by March 2011 from 45% in July-Sept, Johari said.
The company has a planned capex of over Rs3,000 crore for the current fiscal, of which Rs2,000 crore has already been spent, Johari said.
Negotiations with Sumitomo
Bhushan Steel hasn’t yet finalized a deal with Japan’s Sumitomo Metal Industries to offer stake in its steel project in West Bengal, Johari said.
Bhushan Steel had announced in December that Japan’s third-largest steel maker may buy a 26-40% stake in the West Bengal venture to build a 3-million-tonne steel plant that will cost Rs20,000 crore.
“Nothing finalized yet...We are negotiating. Valuation is also one of the major factors. There are many factors,” Johari said, but refused to give any deadline either for the deal or for the setting up of the plant.
He, however, said the fate of the West Bengal project is not linked to a deal with Sumitomo.
Shares in Bhushan Steel, valued at about $2.2 billion, ended 1.1% down at Rs473.30 on the BSE.