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Mumbai , Oct. 20

IN a bid to establish itself as an integrated steel producer, Jindal Iron and Steel Company Ltd (Jisco) is considering a merger with group company Jindal Vijaynagar Steel Ltd (JVSL), both part of the $2-billion Jindal Group. The companies had a combined turnover of Rs 4,400 crore for the year ended March 2003.

The boards of the two companies are meeting on October 22 to decide on the merger. Both the boards will also decide on the appointment of consultants and valuers to evaluate the proposal in detail.

Jisco, with a turnover of Rs 1,612 crore, is the country's leading galvanised steel manufacturer accounting for 17 per cent of India's galvanized steel products. JVSL, with an annual turnover of Rs 2,786 crore, has a hot rolling capacity of 1.6 million tonnes per annum.

"We think it's good time to merge the two companies which are doing extremely well. We want to cash in on the efficiencies," said Mr Raman Madhok, Joint Managing Director & CEO, Jisco.

Currently, promoters hold 62.43 per cent in Jindal Vijaynagar. Of this Jindal Iron's stake stands at 28.43 per cent, Jindal Thermal Power Company's stake at 11.63 per cent and Jindal Holdings at 4.26 per cent. Other stakeholders include mutual funds with a holding of 1.09 per cent; banks 2.10 per cent; foreign institutional investor 0.15 per cent. Private corporate bodies hold 4.58 per cent, public hold 25.59 per cent.

Jisco's shareholding pattern is as follows - promoters hold 54 per cent; mutual funds and UTI hold 3.07 per cent; banks, FI and insurance companies hold 6.32 per cent, PCBs 11.06 and public 22.16 per cent.

Equity analysts tracking the steel sector were surprised with the merger decision. One of them said the decision might be beneficial in the long run. However, the swap ratio would be something crucial to watch out for, he said.

Both Jisco as well as JVSL have improved their financial performance primarily on account of improved steel demand coupled with firm steel prices, furthered by the companies' cost reduction measures.

Jisco, which had reported losses during the year 2000-01 and 2001-02, has been able to increase its profits and revenue mainly due to higher exports. For the first quarter of the current fiscal, Jisco had turned in a net profit of Rs 20.31 crore (Rs 9.7 crore) on a sales of Rs 470 crore.

JVSL returned a net profit of Rs 22.92 crore for the first quarter of 2003-04 against a loss of Rs 78.40 crore in the year-ago period.

Globally, the steel industry is expected to grow at 4 to 4-5 per cent during the current fiscal.

The company has been working towards reducing its cost of production. Its pellet capacity is being increased to 4.2 million tonnes through de-bottlenecking. For the current fiscal, Jindal Vijaynagar's export target of pellets is one million tonnes.

At the end of the first quarter, it had repaid Rs 71 crore debt and plans to prepay another Rs 200 crore debt in FY04 besides regular repayment of Rs 200 crore. It hopes to have interest savings of Rs 100 crore.

Jindal Iron has set a production target of 6,25,000 tonnes of galvanized products in the current fiscal. It repaid Rs 76.39 crore debt in Q1 and has FY04 plans to cut debt by Rs 150 crore with debt equity at 1:1 by fiscal's close.

Wednesday's board meeting of Jindal Vijaynagar will also take up the issue of prepayment and settlement of outstanding dues of Rs 383.44 crore to some of the unsecured foreign lenders.

On BSE today, Jindal Iron fell to Rs 899 from the previous close of Rs 935 and Jindal Vijaynagar ended at Rs 17.37 (Rs 17.13).

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