The Hindu Business Line : Bhuwalka Steel to revamp operations; to sell Lankan unit

SECONDARY steel maker Bhuwalka Steel is close to finding a buyer for its plant in Sri Lanka even as the company has decided to restructure its entire operations in India.

"We are close to finding a buyer and we should be able to wrap up the sale in a few weeks," the Bhuwalka Steel Vice-President for Finance, Mr P.K. Chamaria, told Business Line.

Mr Chamaria said the decision to exit Sri Lankan operations was because of the high fluctuations of the Sri Lankan currency and ``we were never sure of how the operations will take shape in the long term.'' Bhuwalka was the first Indian steel company to set up a plant for manufacturing long steel outside the country. It had originally invested around Rs 12 crore in the 50,000-tonne plant in Sri Lanka, which was partly funded by the Exim Bank of India. However, over a period of time, currency of Sri Lanka had depreciated thereby eroding the value of its investments.

Mr Chamaria said the entire operations of Bhuwalka were being restructured with some of the smaller units being put up for sale. This was being carried out to consolidate the operations of the company, reduce term liabilities and improve debt servicing.

He said that after the restructuring, Bhuwalka will be able to reduce its debt burden by Rs 20 crore to around Rs 25 crore within two years. "It is the best time to go through restructuring as the steel industry is doing extremely well."

Mr Chamaria said proceeds from sale of the plant in Sri Lanka and other units in the country will be used to modernise the existing plants. It will lead to increase in the output by 15 per cent to 20 per cent. He said after the restructuring, IDBI would remain the only lender to the company. IDBI had also agreed to lower the interest rates on existing loans.

The company had also taken a decision to start selling directly to customers implementing projects instead of routing it through dealers. Because of this strategy, Bhuwalka has been able to save on commissions and also get better rates from customers. He said nearly 50 per cent of the business comes from the booming construction industry.

The total capacity of the Bhuwalka units is around 2.71 lakh tonnes with 70 per cent utilisation. Mr Chamaria said the margin for the organised manufacturers was extremely low in the secondary steel sector, which was dominated by unorganised players. For 2003-04, Bhuwalka posted a turnover of around Rs 370 crore and a net profit of around Rs 2 crore.