Jindal Steel & Power (JSPL) is in talks to pick up a strategic stake in Steel Exchange India (SEIL), which is looking for strategic investors in an additional equity deal, according to sources privy to the development. However, the size of the deal is not yet known as discussions are in early stages, they said.
The company confirmed to Moneycontrol that it has been scouting for investors and received an expression of interest (EoI) from JSPL, among others. Once the deal is finalized, the steelmaker will intimate the stock exchanges “in the interest of all stakeholders of the company.”
“JSPL continues to evaluate strategic opportunities on an ongoing basis as and when they arise,” said a company spokesman.
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JSPL, which aims to raise its installed capacity more than fivefold to 50 million tonnes per annum from 2030, has been on the lookout for inorganic expansions and is open to acquiring a company if deemed to be a strategic fit.
Visakhapatnam-headquartered SEIL makes TMT Bars, a type of high-strength steel product. The flagship company of Vizag Profiles Group, SEIL has proximity to the sea port.
SEIL, which presently has crude steel production capacity of nearly 0.3 million tonne per annum (MTPA), intends to scale it up to 1 million tonne. This could potentially drive its EBITDA of nearly Rs 500-600 crore from the present EBITDA of roughly Rs 120 crore, said a company official. Working capital issues have marred utilization levels of the company which can pick up once some funding is received, the official said.
About Steel Exchange India:
Incorporated in February 1999, SEIL is primarily engaged in the manufacturing and trading of TMT bars, billets, ingots, sponge iron, and power generation. The company has a manufacturing facility for sponge iron (220,000 Tons Per Annum (TPA), billets (250,000 TPA), ingots (90,000 TPA), and TMT bars (225,000 TPA).
The company is one of the few manufacturers of CRS-grade rebars in the country and supplies to the Indian Armed Forces as well as to other National Infrastructure projects, according to the company’s annual report.
How does SEIL’s financial stack up?
The company reported a total operating income of Rs 1,099.5 crore in FY22 against Rs 898.8 crore in FY21, registering 22 percent year-on-year growth. This was led by overall improved sales. The company reported an operational and net loss during FY18 and FY19 on account of sluggish demand coupled with increased prices, which resulted in under-absorption of overheads. Nevertheless, with improved sales realization, the company earned profits in FY22, and the profit margin stood at 10.59 percent.
As per a CARE Ratings Report dated January 19, 2023, SEIL’s capital structure has been improving over the years. The company has been strategically moving from debt-based funding to equity-based funding. The overall gearing ratio remained at 0.82 times as on March 31, 2022, as compared to the FY21 gearing ratio at 5.61 times on account of an increase in total net worth with an infusion of equity and funds in form of compulsory convertible debentures (CCDs).
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