Vizag Steel mulls IPO option

Considers other alternatives to raise resources for its proposed Rs 8,500 crore expansion

Rashtriya Ispat Nigam Limited, the holding company of Visakhapatnam Steel Plant (VSP), is weighing the option of going for an initial public offer (IPO).

The steel plant is also considering other alternatives to raise resources for its proposed 7 million tonnes expansion at a cost of about Rs 8,500 crore at Visakhapatnam. The expansion is scheduled to be completed by the year 2007-08.

"At present, we are studying the market. We will arrive at a decision after taking into consideration the market conditions," said Y Siva Sagar Rao, chairman and managing director of Vizag Steel Plant on the option of going for a public issue.

A detailed project report of the expansion plans has already been sent to the Government of India and the clearance for the same is expected in a month or two, Rao said.

Addressing a media conference on Saturday, Rao said that of the total capital requirement for the proposed expansion, the public sector undertaking is capable of raising over Rs 5,500 crore from internal accruals while the remaining money could be borrowed from financial institutions.

According to him, equipment worth between Rs 1,500 crore and Rs 2,000 crore is required to be imported for which exim banks and other institutions of the US and European countries were willing to provide credit guarantee at a nominal cost.

Vizag Steel Plant achieved a remarkable sales turnover of Rs 8181 crore, 32 per cent higher than the turnover achieved during 2003-04, on the 3.17 million tonnes of saleable steel being produced by it during 2004-05. The profits too are expected to increase by 20-22 per cent for the year as compared to Rs 1,547 crore during 2003-04.

Admitting that the accumulated losses of the plant could reach to over Rs 1,000 crore by the end of March 31, 2005, the management, however, maintained that it would be a mere technicality of book entries with the holding company's total equity remaining at a whopping Rs 8,000 crore in the plant.

"Raw material and other costs have been rising. Yet, we are not transferring the entire burden on to the consumer even though the company raised the prices at an average rate of Rs 1,500 per tonne," Rao said.

Thanks to the automation, the plant may recruit just over 900 people even after nearly doubling its capacity, which is now manned by 16,683 people.

"Of the existing manpower, over 1,000 people will be redeployed in the additional facility," Rao said. The plant, during 2004-05, achieved an average capacity utilisation of 119 per cent with a 4 per cent increase of finished steel at 2.89 million tonnes.

VSP's expansion plans will see a total production of 5.7 million tonnes of saleable steel in 2007-08, Rao said, adding, some logistical improvements, which would also allow the plant with considerable savings, are underway.