Electrosteel Steel (ESL) limited, promoted by Electrosteel Castings Limited (ECL, is in the business of steel manufacturing. The company has come out with an IPO with a price band of Rs.10-11. The main objective of the issue is to finance the construction of the upcoming integrated steel and DI pipe plant with a capacity of 2.2 MTPA in Jharkhand, India with the estimated cost of 249.2crore. The plant is likely to commence production from Oct’10. The company has also entered into marketing tie up with Stemcor, world’s largest steel marketing company, to sell 20% of its product in export market.
Going ahead, the company would benefit from higher steel prices regime thus generating higher operating cash flows. In Addition the Company would have captive power plant and will get access to cheaper power compared to higher merchant power that could be bought from external sources.
ESL is backward integrated in terms of Coking coal and Iron ore through its parent company ECL and ESL has entered into agreement with ECL to supply iron ore and coking coal for a period of 20years.
Apart from this, they have flexible product mix with a presence in the entire value chain of steel which may prevent them from the adverse effects of cyclical nature of business.
However, ECL’s captive iron ore mine is yet to get clearance from ministry of forest, before which it can not execute mining lease agreement, necessary for iron ore off-take.
Moreover, the company is in the operating steel manufacturing business and its projects are still in the construction phase.
Still in the development phase, the company does not have operational capacities. Investors can subscribe this issue with a long term prospective.
No comments:
Post a Comment