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JSW Steel acquires Welspun Maxsteel in Rs1,000-crore deal

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19 August 2014

JSW Steel Ltd, India's third largest steel maker by capacity, is acquiring Welspun Maxsteel Ltd (WMSL), a unit of Welspun Enterprises Ltd, in a transaction that values the company at Rs1,000 crore.

WMSL has long-term debt of Rs1,087 crore, Welspun Enterprises said in a BSE filing on Monday.

The acquisition is in line with JSW Steel's plan to take its total steel production capacity to around 40 million tonnes by the next decade. The company is expanding capacities at its existing sites and setting up plants in new locations, including two 10 million tonne greenfield facilities in West Bengal and Jharkhand.

The company's plants in Karnataka, Tamil Nadu and Maharashtra have a combined installed capacity of 14.3 million tonnes per annum and its growth strategy is driven by its forward and backward integration initiatives, according to the company.

''WMSL is situated in close proximity (within 40km) to company's Dolvi unit (in Maharashtra), offering complementary infrastructure and location to augment the current envisaged expansion at Dolvi. In line with this objective, JSW wishes to acquire the entire equity shares of WMSL,'' said JSW Steel.

WMSL has a gas-based plant with an installed capacity of 900,000 tonnes per annum and a captive jetty and a captive railway siding, at Salav village in Raigad district of Maharashtra. The captive jetty, with an existing capacity of 2.5 mtpa, is located 1.8km from the plant, while the captive railway siding is located at Roha junction, 35km from the plant.

''This acquisition is value-accretive to JSW Steel due to synergies in supplying surplus pellets to Welspun Maxsteel and use of DRI (direct reduced iron) from WMSL in company's steel-making operations at Dolvi plant,'' said Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel.

WMSL also has approximately 480 acres of vacant land available for future expansions.

''The company (JSW Steel) has surplus pellets in its subsidiary Amba River Coke Ltd which will be supplied to WMSL. The cost of production in WMSL is expected to come down due to replacement of significant portion of its bought-out pellets with captive pellets. The DRI produced by WMSL will initially be used partly by the company's Dolvi unit, and would be consumed in the entirety post completion of its ongoing expansion to 5 mtpa,'' JSW Steel said in its statement.

EY and Luthra and Luthra carried out financial and legal due diligence for JSW Steel on the transaction.

Sajjan Jindal-promoted JSW Steel is looking for other strategic acquisitions too. Recently, the group bid for parts of the insolvent Lucchini SpA in Italy, which it hopes to use as a processing centre to sell to Europe at a low cost.

The company has also bid for UK steel trader Stemcor's Indian assets that have mines and a plant in Odisha for $750 million, but talks have not moved further since the January bid.

JSW Steel focuses on the production of high-end, value-added steel. Nearly 40 per cent of its products are high value steels and the company plans to take this figure up to 50 per cent.

JSW Steel exports nearly a fifth of its products and is India's largest exporter of coated products with a presence in over 100 countries.





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