Jindal Iron & Steel Co (Jisco) is all set to transform itself into an integrated steel player through its merger with its group company, Jindal Vijaynagar Steel Ltd (JVSL). Jisco is the promoter of JVSL, in which it has an equity investment of Rs500 crore. The merger, ratio has been decided atone share of Jisco for 16 shares of JVSL.
The merger will transform Jisco from a converter of HR steel to an integrated steel player. Jisco currewntly produces CR and galvanised sheets. It does not make HR steel itself, but buys it from JVSL.
The company is also looking at capacity enhancement, which would drive volume growth and also cutting down production expenses by reducing the cost of power and coke. The expansion would entail a capital expenditure of Rs280 crore. This does not include the cost of coke oven and blast furnace, which would cost Rs395 crore to, but are being built on a lease arrangement.
Jisco plans to expand capacity further over the next two years through the blast furnace route. This would involve a total outlay of Rs1,275 crore and would be funded by a mix of internal accruals of Rs425 crore and debt.
The company, which is saddled with huge debt, is also engaged in aggressive debt repayment programme. It is seeking to reduce debt by Rs85 per share in each of the next two fiscals. Jisco''s consolidated debt stood at Rs6,000 crore as at end FY2003, and had brought this down to Rs 4,800 crore by end of FY2004. This still translates to a very high gearing of 2.4:1, in view of the merged entity''s net worth of Rs 2,000 crore.
It is estimated that the company''s cash availability will be at Rs 1,400 crore. The company could use it to reduce the debt further by at least Rs1,000 crore.