Mumbai: India’s third largest steel maker by capacity, Essar Steel Ltd or ESL, on Tuesday signed an agreement to buy Pune-based Shree Precoated Steels Ltd for at least Rs600 crore.
The acquisition will strengthen ESL’s presence in high-margin, value-added steel products. It will also add Rs2,500 crore revenues a year to the unlisted ESL, after it doubles the operating capacity of the four units of the Pune-based firm that makes value-added products, from 50% to 100%, Esser Steel business group chief executive officer J. Mehra said.
The deal has filled in a gap in a chain between the primary steel maker and a retail chain known as a hypermart, where it sells finished products.
Strategic location: Essar Steel will have an advantage as it can supply to auto makers in Pune from Shree Precoated Steels’ units.
ESL earned 30% of its Rs12,000 crore revenues in the year to March 2009 from 230 stores across the country.
The company reported an operating profit of Rs2,600 crore last fiscal and has cash of Rs900 crore. The acquisitions will be funded with internal accruals, Mehra said.
ESL will take over Rs175 crore of long-term debt and other financial liabilities of the Pune firm after a 60-day due diligence by Ernst and Young, the exclusive advisers to the transaction.
After the acquisition by ESL, Shree Precoated Steels will get an assured supply of nearly 0.5 million tonnes of primary steel from ESL’s Hazira plant to feed its cold-rolling and galvanizing units.
Steel makers, who traditionally focused on primary hot-rolled coils for the construction sector, are shifting to value-added products.
ESL, which has a 9.5 million tonnes capacity in India and additional 4 million tonnes capacity in the US and Indonesia, can make custom-made steel products for white goods, automobile, engineering and construction industry.
It will now have a locational advantage as it can supply to auto makers in Pune from Shree Precoated Steels’ units at Ranjangaon.
Ajmera group, a real estate developer and the promoters of Shree Precoated Steels, spinned off its steel business into a separate firm in January 2009.