The Hindu Business Line : SISCOL sees surge in share volume ahead of merger

Coimbatore, Nov 20 The countdown to merger of two O.P Jindal group companies—JSW Steel and Southern Iron and Steel Company Ltd (SISCOL)— has not only seen appreciation in value of shares of both companies but also a volume surge in the trading of SISCOL in BSE .

The volume of shares traded in SISCOL counter has consistently crossed the million mark in the past few weeks, despite the fact that the merger, approved by the board of SISCOL last month and to take effect from April 1, 2007, is still a few months away as various approvals needed will have to be obtained prior to actual merger.

The proposed merger is expected to catapult the merged entity as the third largest steel producer in the country, ahead of Essar Steel and tantalisingly close to Tata Steel but way behind the leader SAIL.

At present, JSW Steel has 3.80 million tonnes per annum capacity and SISCOL’s production capacity is being upgraded from 0.3 million tonne to 1 mt. After the expansion , the capacity of the combined entity would go up to 4.80 mt, ahead of Essar’s 4.60 mt and marginally lower than TISCO’s 5 mt capacity. SAIL has a capacity of 12.80 mt (all data sourced from the presentation made to investors by JSW Steel recently).

Explaining the rationale behind the merger , JSWSL pointed out that the merger was expected to “lead to integration of operation into a single entity thus providing additional scale”. It would also enhance the product portfolio and “reduce exposure to any particular product segment”. It would also increase the presence in the long product segment by combining the 1 mtpa capacity of SISCOL with JSW Steel’s proposed 1.5 mtpa capacity.

The company felt that the merger would pave the way for cutting down cost, leading to greater market competitiveness and SISCOL’s existing customer base could be exploited further when the JSW Steel’s planned 1.5 mtpa expansion project materialises. The merger would also be earnings accretive “considering the efficient accelerated utilisation of tax losses and potential savings in overhead costs”.

In terms of addition to the share capital, the merged entity will have only a marginal increase of about 10 per cent which should have a positive impact if one takes into consideration the substantial increase in revenue and market penetration. At present, JSWSL has an equity base of Rs 163.98 crore and SISCOL Rs 267.02 crore. Because of the swap ratio of 1:22 (One share of JSWSL for every 22 shares of SISCOL), the merged company’s equity capital, post conversion of OCD, would go up by just Rs 15.04 crore to Rs 179.02 crore.

JSWSL had a net sale of Rs 8,594 crore and PAT of Rs 1,292 crore in 2006-07 FY. At the end of last year, its share was traded at about Rs 494 and EPS was around Rs 78. SISCOL’s turnover in FY 2006-07 was Rs 688.41 crore and the EPS was just Rs 2.06. The share was trading around Rs 28 at that time.

Since the merger announcement and also in view of the improvement in market sentiment, there has been a substantial increase in the share price of both stocks. The stock price of JSWSL has almost doubled to close around Rs 955 in NSE on Tuesday while SISCOL’s share closed in the Rs 39 level on BSE. These prices are, however, lower than the year’s high stock prices — Rs 1,044 in case of JSWSL and Rs 50 in case of SISCOL. The volume of SISCOL shares traded was around 16.88 lakh today.

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