ISMT has been able to de-risk itself from steel price volatilities because it has linked the price of its tubes to scrap, a major raw material for alloy steel.

Latha Venkatraman
Shyam G. Menon

Mumbai, Nov. 3

INDIAN Seamless Metal Tubes Ltd (ISMT), which is in the process of consolidation as a merged entity, would look at overseas markets for growth.

"Our driver for growth is exports. They have grown by 100 per cent last year," said Mr Rakesh Duda, Resident Director, ISMT.

ISMT has emerged out of the merger of Indian Seamless Steels and Alloys Ltd and Indian Seamless Metal Tubes. The company had secured court approval for the merger effective from April 2004.

For the September 2005 quarter, the merged entity reported a net profit of Rs 28 crore. Its exports during the first half of the current fiscal grew by 100 per cent to Rs 125 crore, said Mr S. Krishnamoorthy, Senior Manager (Finance & MIS), ISMT.

Focus on precision tubes: Although the company's portfolio of products has widened, it wants to focus on precision tube manufacturing.

A fairly big player in precision seamless tubes in India, ISMT has been able to leverage its flexible manufacturing systems. "We have worked on size changes in our facility so often that our manufacturing efficiencies have improved considerably. Therefore, we are able to cater to small orders. That is our USP," Mr Duda, said when asked how the company manages to be cost competitive in export.

ISMT offers a variety of precision seamless tubes to tier-1 suppliers of the automobile industry, bearing manufacturers, general engineering industry, textile machinery manufacturers, mining and oil industry. American Axle & Manufacturing Holdings and SKF are some of the companies to which ISMT exports tubes.

Backward integration: The merger gives the company the advantage of backward integration. Of its total alloy and carbon bearing steel, it uses 60 per cent captively, 40 per cent is sold to third parties. Though rising input costs do pose a problem, ISMT has been able to de-risk itself from steel price volatilities because it has linked the price of its tubes to scrap, which is a major raw material for alloy steel.

Consolidation: Following its merger and debt-restructuring programme, the company's focus is to consolidate. "We want to take our debt-equity to one by March 2006 from 1.3 at the end of September 2005," Mr Duda said. The company has an outstanding debt of Rs 540 crore. This fiscal it plans to bring it down by Rs 200 crore.

"We have far exceeded the Corporate Debt Restructuring programme requirement in terms of growth. Our tubes business is growing at 20 per cent," Mr Krishnamoorthy said. The cash flow is expected to improve further, he said.

The company is banking on organic growth to propel it forward in the two-million-tonne global market for precision seamless tubes. It has ruled out plans to tap the capital market for funds at this juncture.

Shares of the standalone ISMT have been quoting in the Rs 68-74 range on the BSE during the last month. Shares of Indian Seamless Steels and Alloys Ltd have been trading in the Rs 55-60 band in the last month.

(This article was published in the Business Line print edition dated November 4, 2005)
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