In a strategic move to become the largest manufacturer of cold-rolled steel in the country, Essar Steel Limited has entered into a definite business transfer agreement to acquire Pune-based Shree Precoated Steels Limited (SPS) from the Ajmera Group of Companies, a Mumbai-based real estate firm.

The deal is expected to be in the range of Rs600-650 crore and is expected to close within 60 days, pending normal formalities.

It had been mulling an investment decision in SPS as  Ajmera has been trying to exit its steel business for the past two years and has been in talks with major steel firms including JSW Steel and Tata Steel for the sale (See: Essar Steel close to acquiring Ajmera's steel unit for Rs700 crore).

''We have appointed Ernst & Young to arrive at a valuation based on the current assets and liabilities within 60 days," said Jatinder Mehra, chief executive officer of Essar Steel at a press conference in Mumbai yesterday.

He said, "Essar Steel expects the deal to add an earnings before interest, tax, depreciation and amortization (EBITDA) of about Rs200 crore in the next couple of years,''

Mehra  had earlier in July told the media that SPS had fixed assets of Rs600 crore, debt of Rs175 crore, and a turnover of Rs2,800 crore.

''This acquisition is a strategic fit for our steel business as it gives us a leadership position in many product segments and also gives us a footprint across different product segments,'' Mehra added.

Essar Steel is a major domestic steel producer, but it has only a marginal presence in the value-added market.

SPS' fixed assets include a colour coating line of four lakh tonnes per annum (tpa), cold rolling mill of six lakh tpa, galvanising line of 5 lakh tpa and pickling line of 6.50 lakh tpa. The deal also includes about 58 acres at Ranjangaon near Pune, where Shree Precoated has its manufacturing facility. The region is one of the largest steel consuming centres.

According to analysts, post-acquisition, Essar Steel will have a cold rolling capacity of two million tonnes, colour coating facilities of 0.4 million tones (used in the automotive sector), galvanising capacity of one million tonnes and pickling capacity of 2.2 million tonnes.

The deal will transform Essar into India's largest cold-rolled and color-coated steel producer. 

''The acquisition would enable the company to offer its entire range of flat products,'' said Sashi Ruia, chairman of Essar Group.

R S Ajmera, managing director, Ajmera Group, said an integrated player such as Essar Steel would be able to take this business to its next phase of growth.
It has capacity of 10 mtpa at Hazira in Gujarat.

In March 2009, the Bombay High Court approved a demerger of the steel division of Shree Precoated Steels and the transfer of this division to an unlisted company called Ajmera Precoated Steels to form a new company also called Shree Precoated Steels.

What was earlier known as Shree Precoated Steels is now known as Ajmera Realty & Infra, which is a listed company.

The Ajmera family owns 62.45 per cent in Ajmera Realty and Infra.