The Hindu Business Line : Mukand plans to hike rolled steel capacity

A leading supplier of steel to the auto industry, the company plans to consider hiking capacity for its rolled steel products by 200,000-250,000 tonnes a year down the road.

The company, which has rolling capacity of approximately 350,000 tonnes per annum, could approach full capacity utilisation during the current fiscal, given sales target of 340,000-350,000 tonnes across its range of rolled steel products.

According to Mr Rajesh V. Shah, Managing Director, capacity would be tweaked higher to 400,000 tonnes during the year through such measures as de-bottlenecking, enhanced operational efficiency and productivity improvement.

Capital expenditure for the year has been pegged at Rs 80 crore. Mr Shah said that the company would seek to fund its proposed capacity expansion, due to be considered after reaching the 400,000-tonne mark, with least recourse to debt.

"We need to take a final view on that capacity expansion," he told Business Line.

The additional capacity would be across Mukand's Kalwa and Hospet plants.

Mukand's borrowings, though brought down through restructuring, were around Rs 900 crore at the close of the last financial year, with a high debt-equity ratio of 2:1.

However, by December 2005 this ratio was hoped to level off at 1:1 with more debt repaid (bringing borrowings to a lower Rs 650 crore), money for which was additionally expected from the company's sale of non-core assets.

Mr Shah said that the targeted total steel capacity should suffice to be one of global scale in the industry, the sharp growth in India's automobile industry serving as rationale and comfort for capacity expansion in a raw material supply arm like alloy/special steels.

Last year, the domestic automobile market had been one of the fastest growing in the world and with reference to auto component makers, there are increasing export opportunities to further speak of.

Mukand is in engaged in production of alloy/special steels and stainless steel longs.

Last year it sold roughly 260,000 tonnes of steel products, its biggest consuming industry being the country's fast growing family of automobile and auto component manufacturers.

Its steel business accounted for 80 per cent of revenues, estimated at around Rs 1,670 crore.

Within that income from steel, Rs 900-950 crore was reckoned to have come from alloy and special steels.

Mr Shah discounted any likely weakness to the company's steel business through exposure to largely one consuming industry. Mukand is also not exploring options for a presence in competing materials to steel, which have been gaining currency in vehicle manufacturing.

Among the company's auto industry clients are Bajaj Auto, Maruti Udyog, Hero Honda, TVS, Sundram Fasteners, MICO, Hi-Tech Gears, and Sona Koyo.

"As long as the auto industry does well, so should we," Mr Shah said when asked how cyclical the alloy/special steels business was when compared to the traditional steel industry.

Approximately 20 per cent of Mukand's revenues came from a variety of other businesses, including engineering projects, building large equipment, and heavy-duty cranes.

From a size of Rs 80 crore, contribution to topline from these businesses is projected to rise to Rs 140 crore this year.

To ensure long-term, cost-effective supply of raw materials, Mukand has taken an iron ore mine on long-term lease from the Karnataka Government.

It also has an affiliate company constructing a coke oven.

Notwithstanding the pressure from raw material costs, Mr Shah said that unlike in the past steel prices should not be a cause of worry for automobile manufacturers in the current fiscal.

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