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Salem Steel attracts Krupp, Nippon Steel - Views on News from Equitymaster

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Salem Steel attracts Krupp, Nippon Steel

Feb 19, 2000

The race for acquiring a majority (74%) stake in the Steel Authority (Sail) owned Salem Steel has begun. According to reports Krupp Thyson (Germany), Evesta Sheffield, Nippon Steel and Jindal strips are the front runners. SAIL is the world's 10th largest and India's largest steel manufacturer. It operates 4 integrated steel plants and 2 speciality steel plants. The company has been on the brink of bankruptcy for some time now. It is attempting to raise resources by getting rid of its loss making units.

Salem Steel Plant is India's second largest stainless steel company with a capacity of 186,000 tonnes of hot rolled steel and 70,000 tonnes of cold rolled steel.

The fight for acquiring a majority stake in Salem Steel is likely to be hard fought. This is mainly because companies that lack a presence in the Indian markets would be looking at making a back door entry even as domestic majors, led by Jindal Strips, try to consolidate their leadership position. The successful company is almost surely going to become a key player in the Indian steel sector.

The disinvestment initiative is a part of the overall restructuring package approved by the government that aims to help Sail return to profitability. A divestment would enable Sail to raise resources while at the same time benefit from the technological and managerial inputs of the new partner.

The government's decision to sell off a stake in Salem Steel is creditable in view of the fact that Salem Steel is loss making and is a drain on the limited resources of the exchequer.

Market View:
Sail is rated as a 'SELL' due the company's low employee productivity and the outdated technology. However, in view of the upturn in the economic cycle and the new restructuring plan approved by the government, some analysts are recommending a 'Trading BUY' on the stock.


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