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Essar Steel aims to turn profitable by year-end

Monday, 28 April 2014 - 4:36am IST | Place: Mumbai | Agency: dna

Debt-laden Essar Steel is looking to turn profitable at net level in the current fiscal by doubling capacity utilisation of its 10 million tonne Hazira plant, reducing interest costs and focusing on higher margin sale of value-added products and commissioning of its slurry pipeline.

"We are targeting to double production as compared with the last fiscal. Added to it two vital things are in place -- one is the slurry pipeline in Odisha coming onstream next month and Vizag slurry pipeline, which is already in operation. That is a big booster. We are looking to get profitable at net level," Dilip Oommen, CEO and MD of Essar Steel, told dna. The 255-km long slurry pipeline, which will connect the company's beneficiation plant at Dabuna to the pellet plant at Paradip, Odisha, has been delayed by almost two years. "Apart from reducing freight cost, the slurry pipeline will also improve the availability of material for pelletisation, which in turn helps the downstream. We expect to have more than enough of pellets at a very competitive price. If there is an excess availability of pellets it will be sold in the market as well," Oomen said.

The company's operational cost is likely to come down with the commencement of slurry pipeline. Apart from this, it now has access to coal-based power and national grid, which will also bring down its power cost. And last, fall in interest cost on dollarisation of debt; all these three factors would help the company to turn profitable this fiscal, he said. Last two fiscals have been extremely tough for the Ruias-owned company as its debt ballooned to more than Rs 31,000 crore in last fiscal. The company has been since then trying to turn around operations through various measures, including dollarisation of debt.

Mahadev Iyer, director-finance and chief financial officer of Essar Steel, said the company at present has a total debt of Rs 35,000 crore, which includes Rs 29,000 crore long-term borrowings and Rs 6,000 crore working capital. The company has so far dollarised (which essentially means conversion of rupee debt into dollar debt) $1 billion worth of loans, while it plans to complete the process by dollarising the remaining $2 billion by June. In fiscal 2013, the company's interest cost had swelled to Rs 2,955 crore.

Through dollarisation, Essar Steel has been able to save Rs 400 crore of interest in fiscal 2014, and it expects to save Rs 800 crore in fiscal 2015, Iyer said. During 2012-13, Essar Steel posted earnings before interest, tax, depreciation and amortisation of Rs 1,822 crore, according to its annual report. But it incurred a net loss of Rs 2,785 crore on a total income of Rs 19,190 crore. The unlisted company is yet to report earnings for the last fiscal.

The Hazira steel plant, which mainly produces flat products, has been operating at an average 40% capacity in fiscal 2014 following cash crunch, short supply of raw material and overall slump in steel demand within the country. The company, however, hopes to double capacity utilisation in current fiscal and produce around 7 mt of steel. India's steel consumption grew by just 0.6% in 2013-14 fiscal, its lowest in four years, to 73.93 mt. Oommen expects some revival in steel demand post elections.

"We have a wide range of products and our quality is very much appreciated and commands premium today, so pushing products into the market is not a problem. Our base quality (basic steel like hot-rolled coil) is very good but we are trying to maximise our niche or specialised steel production so that our base grades in the market are minimised." "We have primarily three avenues; OEMs, retail and exports, so it is not one market where we push all the quantity. We are port based, so exports to many countries work out cheaper than domestic freight also," he said.

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