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C.R. Sukumar

Hyderabad , Feb. 19

AIMED at substantially increasing its market share in the steel products industry, Sujana Metal Products Ltd is planning to acquire the assets of its group company - Padmini Corporation Ltd, the Chennai-based entity engaged in the manufacture of steel rerolled products.

At present, Sujana holds 41.15 per cent equity stake in Padmini Corporation, which has a capacity of 1,40,000 tonnes per annum.

Sujana proposes to acquire the assets and liabilities of the industrial undertaking owned by Padmini at a consideration of Rs 52 crore.

Padmini was initially floated by Sujana and others in 1996 to set up an integrated steel rerolling mill at Manjakaranai in Uttukottai taluk of Tamil Nadu for manufacture of 1,25,000 tonnes of steel products at a capital cost of Rs 48 crore.

Later, owing to technological developments in the manufacturing methods and change in product mix, Padmini revised the project cost in 2000 to Rs 128 crore to manufacture 1,40,000 tonnes per annum.

The Sujana Metal management proposes to discharge the purchase consideration of Rs 52 crore for the acquisition of Padmini's assets by allotting 10.4 lakh non-cumulative redeemable preference shares of Rs 100 each at a premium of Rs 400 per share.

These shares would be redeemed at the end of the 20th year at a premium of Rs 1,150 per share.

"The company's annual outflow in the form of dividend will be negligible and the redemption of preference shares at a premium of Rs 1,150 per share at the end of 20th year works out to 7.5 per cent per annum, which takes care of the low rate of dividend," Sujana Metal sources told Business Line.

On the advantages of takeover, they said the sales of Sujana after taking over assets and liabilities of Padmini would be Rs 1,000 crore in the optimum year from the current level of around Rs 550 crore.

It would also increase the market share of Sujana with additional steel products being added.

They said the size of operations would also enable Sujana to source the raw material at competitive prices keeping an eye on profitability. "Sujana Metal is already an established company with developed marketing network. Taking over the assets and liabilities of Padmini Corp will broadbase the availability of the various steel products. Using the same marketing network, more turnover can be achieved."

According to them, since the steel products of Sujana Metal were already certified by the Bureau of Industry Standards, the certificate would enable to market the Padmini steel products at a premium and marketing of Padmini products would be easy and rewarding.

Another key advantage of taking over Padmini Corp's assets, they said, "Sujana is already qualified for participation in World Bank tenders. Special value-added steel products to be produced by Padmini such as wire rods, joists and special sections would enhance the scope of participating in global tenders."

In the domestic market, Sujana Metal is registered with various Government agencies, institutional customers such as BSES, Reliance Infocom and Nagarjuna Construction Company, which would enable it to market Padmini's steel products in a focussed manner, they said.

More Stories on : Mergers & Acquisitions | Steel

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