Uttam Galva eyes acquisitions to spread risk
Uttam Galva Steels Ltd plans to expand capacity through acquisitions and greenfield projects in an effort to spread risk and increase sales, a senior company official said.
In June, the flat and galvanised steel products maker had "backed out" of a bid to buy U.S.-based Detroit Cold Rolling Co. but is now pursuing acquisitions elsewhere, Ankit Miglani, director (commercial), told the media in an interview on Monday.
"Outright acquisitions are being negotiated and we are looking at greenfield options also," he said, but refused to elaborate.
Having new facilities, both in India and overseas, will enable the company to "diversify" risk, Miglani said.
The company saw sales dipping in 2005/06, largely due to floods which affected output at its plant in the western state of Maharashtra.
"If I have a foothold outside India, it helps me to leverage my sales and allows me to add value out there," Miglani said.
About 70 per cent of the company’s output is exported, accounting for nearly 50 per cent of revenue. The company has customers in 120 countries with the bulk of orders coming from the United States and Europe.
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From 450,000 tonnes at the begining of 2005/06, Uttam Galva is now expanding cold-rolled steel capacity to 1 million tonnes, entailing an investment of more than Rs 6 billion to be funded through debt and internal accruals.
"It looks like a large capacity for India, but for the global market place it is moderate," Miglani said.
The new capacity would go on stream by the end of 2006/07 and would add new products to its portfolio. "With our new production range out we would be like a one-stop shop."
This would provide the flexibility of a better product mix with a wider range, he added.
Other Indian steel makers including competitors JSW Steel and Tata Steel are also expanding capacity.
"The industry is getting harder and harder, competition is growing, everyone expects it to grow worse and with a lot of capacities coming up, things are going to get more difficult," Miglani noted.
Uttam Galva saw a 14.6 per cent drop in net sales to Rs 17.88 billion in the year to March 2006, and net profit fell 21.5 per cent to Rs 743.3 million due to a drop in production, rising financial costs and depreciation.
Shares in the company ended 3.58 per cent lower at Rs 32.35 in a weak Mumbai market.
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