labels: industry - general, steel
Big plans by Surana Industries news
Venkatachari Jagannath
26 September 2006

Chennai: The Chennai-based Rs625.55 crore steel manufacturer Surana Industries Limited, is setting up an integrated steel complex at Raichur, Karnataka.

Planned at a capex of Rs473 crore, the proposed plant will mainly cater to the needs of the domestic automotive industry. The company wants to cash in on the emergence of India as a manufacturing hub for auto component and other industries.

Expected to start functioning next December, the proposed plant will have capacity of 1.28 lakh tonne of sponge iron, 1.36 lakh tonne of steel melting shop and 1.32 tonne of rolling mill. The project also includes a 30 MW captive power plant to be powered by heat recovered from the furnace also by coal. The Karnataka government has allotted 164 acres for the project out of the promised 300 acre.

The company hopes to generate a revenue of Rs500 crore from the new plant in its full year of operations which would take the turnover to Rs1,200 crore by March 2008.

Surana Industries currently operates two plants — one at Gummidipoondi near Chennai, which produces 1.09 lakh tonnes of thermo mechanically treated (TMT) bars and 30,000 tonnes of mild steel ingots. The other plant at Madhavaram in Chennai rolls out cold rolled steel products. The company has a 12 MW windmill at Thirunelvelli.

Last fiscal the company, which has a Rs15.50-crore equity base, posted a net profit of Rs23.44 crore. The company's reserves stand at Rs76.27 crore.

According to V M Swami, director, finance, the funding of the Raichur project will be a mix of debt and equity. Excerpts

Could you give us the break up of the new project funding?
The Rs473 crore project will be financed with a mix of term loans from banks (Rs330 crore) and equity capital of Rs143 crore.

Will you be tapping the market with a public issue? Sometime back the company announced that it would come out with a public issue for Rs300 crore. What is the current promoter holding and post issue what will be the shareholding pattern?
The equity part will be funded by way of equity issue to the promoters to the tune of Rs30 crore. We will also issue of foreign currency convertible bonds (FCCB) to the extent of Rs72 crore to start with. Both the issues will be at a premium of around Rs120-130 per share.

The par value of our share is Rs10. In addition there will be plough back of profits to tune of Rs40 crore. Ultimately the total funds by way of promoter contribution, FCCB and profits plough back will aggregate around Rs300 crore. Several investors in Singapore and the US have shown an interest in subscribing to the FCCB. Even though we need only Rs143 crore from equity for the Raichur project, the remaining amount will be utilised for retiring high cost debt (around Rs61 crore) and the company's working capital needs.

We are also planning to have one more induction furnace at Gummidipoondi plant. There will not be any change in the shareholding pattern after the issue. The promoters holding will remain at 49 per cent as they will pick up further shares to maintain their holding ratio.

At the bourses the company's scrip changes hands for around Rs80. But we are raising the equity based on our expected earning per share (EPS) of around Rs20 for 2008-2009.

What is company's debt now? At what rate will you be raising the additional debt to fund the Raichur project?
The company currently has a debt of Rs170 crore. The Raichur project will have a debt component of Rs330 crore — 66 per cent of the total project cost. Leading public sector banks will be offering the debt at a coupon rate ranging 9 per cent to 9.5 per cent per annum. The yearly interest cost for the company will be Rs25 crore.

When will the Raichur project to breakeven?
The company expects break even in the first year itself. In terms of the appraisal report the cash break even is around 35 per cent.

Who are the EPC contractors for the projects - steel mill and power plant?
We will be buying the equipments and the arc furnace from G A Danieli, a multinational company (MNC). We have also shortlisted companies and the final decision on the EPC contractor is yet to taken. We have offers from Tata Projects and Thermax for the power project and Beekay Engineering Corporation, Bhilai for the kiln and other equipments. These are yet to be finalised.

Where will you source the raw material for the Raichur project? Has the company got any iron ore mine on lease? If so, where is the mine located; the ore reserves in the mine; the lease period and the lease amount?
We have applied to the Karnataka government for an iron ore mine and the application is being considered. In the meantime we have entered into tentative contracts for supply of iron ore from the others. India exports iron ore and there is no dearth of raw material for steel manufacture.

While there will be a slight cost increase if we continue to buy iron ore from outside, it will have no bearing on our operations. There are a number of steel mill in the country, which do not own iron ore mines.

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Big plans by Surana Industries