Processed steelmaker Bhushan Steel expects its net profit to grow by a quarter in 2010-11 on strong demand and improved margins due to backward integration. The company expects a sharp pick-up in demand from auto sector from January onwards. Bhushan Steel sells 35-40% of its produce to automakers and another 15-20% to consumer durables companies. Higher demand for cars and increased government spending will enhance steel demand in the Jan-March quarter leading to “some increase” in prices. Sales volume is expected to rise by 30-40% in the second half of FY11 and its 1.2 million tonnes processed steel plant is working at over 100% capacity.
The input cost though would remain stable as a slowdown in China will keep raw material prices in check, however, backward integration will help expand margins in the second half of 2010-11 over the first half. The company has set up a primary production facility for hot-rolled steel coils to be used as raw material for its processed steel manufacturing plant, reducing costs. The proportion of captive HR coils will increase to 60% by March 2011 from 45% in July-Sept. The company has a planned capex of over Rs 3,000 crore for the current fiscal, of which Rs 2,000 crore has already been spent.
Bhushan Steel hasn’t yet finalized a deal with Japan’s Sumitomo Metal Industries to offer stake in its steel project in West Bengal. Bhushan Steel had announced in December that Japan’s third-largest steel maker may buy a 26-40% stake in the West Bengal venture to build a 3-million-tonne steel plant that will cost Rs 20,000 crore.
