Velagapudi Steels is operating a 60,000-tonne capacity steel mill at Anakapalli near Visakhapatnam since the last two years. It uses billets as the main raw material to produce different grades of re-bars. Of late, the company has been facing a shortage of raw material, which has affected its business. Last fiscal, it achieved a turnover of Rs 40 crore with a profit of Rs 1 crore.
"Had there been sufficient supply of raw material, our turnover could have crossed Rs 150 crore. Short supply from the Vizag Steel Plant and SAIL had a severe impact on our business during the last fiscal," V Gopalakrishna Prasad, chairman, Velagapudi Steels, told Business Standard.
To overcome this problem, Velagapudi Steels tied up with SAIL for supply of raw material.
According to the wet lease agreement, SAIL would convert billets into re-bars at Velagapudi's steel mill, and these would be sold in the market under the SAIL brand. Velagapudi Steels will get conversion charges. SAIL will convert over 50,000 tonne of billets into re-bars every year.
"We are investing Rs 1.5 crore in technology upgradation and in providing additional units like coal-gasifying unit to reduce the conversion cost by over Rs 300 per tonne," Prasad said. With this arrangement, Velagapudi Steels is likely to earn Rs 50 crore with a margin of Rs 4 crore this fiscal, he added.
Velagapudi Steels had also tied up with Nellore-based steel unit Bollineni Castings to produce 2,000 tonne of re-bars a month. "We will produce 2,000 tonne of re-bars every month at Bollineni Castings and market them under the Velagapudi Steels brand. This is likely to add another Rs 50 crore to our turnover," he said.
