The Hindu Business Line : HEG selling steel biz for Rs 88.5 cr

Ownership transfer
The company’s Durg steel unit’s profitability had been under pressure.
HEG intends to use the sale proceeds to retire debt.

Our Bureau

Mumbai, July 18 HEG Ltd, part of the LNJ Bhilwara Group, is to sell its fully integrated steel business (including sponge iron, steel billets and a 13 MW waste heat recovery power system power plant) at Durg in Chhattisgarh to Jai Balaji Industries Ltd of Kolkata.

“The company will transfer the ownership of the unit for a total consideration of Rs 88.5 crore for fixed assets. Net current assets would be transferred on a mutually agreed price on August 1, 2007,” HEG informed the BSE on Wednesday.

Post de-merger, HEG will emerge as a focused graphite electrodes company where it enjoys a global position as a manufacturer of world-class graphite electrodes. The company’s client portfolio includes Arcelor Mittal, Posco, Krupp Thyssen, US Steel, Nucor, and Usinor.

Mr Ravi Jhunjhunwala, Chairman and Managing Director of HEG, said: “The decision to hive-off the steel business stemmed from our strong belief that HEG’s core graphite electrodes business addresses a growing global market. I believe that driven by a greater focus on our core business operations, HEG will be able to further strengthen its balance sheet and leverage its global market position and deliver progressive performance in the future.”

HEG intends to use the sale proceeds to retire debt, which will reduce interest costs and result in benefiting net earnings. The steel business in Durg contributed Rs 197 crore to the company’s domestic sales in FY07 and hence the company’s domestic sales are expected to decline.

However, the Durg steel unit’s profitability had been under pressure, with the unit registering a loss of Rs 4.21 crore at the PBIT level in FY07. To further enhance its graphite electrode business, HEG recently announced that it will be investing Rs 35 crore towards de-bottlenecking in its graphite electrode plant.

This will increase the company’s total graphite electrode production capacity to 57,000 tonnes from 52,000 tonnes. The expansion will be completed by fourth quarter of FY08. In the last quarter, the company announced that it would set up a second 33 MW thermal power plant at an investment of Rs 80 crore.