SAIL: Getting Steely

While most of companies have put the expansion plans on hold on account of difficult macro economic conditions, SAIL plans to invest around Rs 800 crore to develop the Bhilwara iron ore mine in Rajasthan and set up a pellet plant with 2 million tonne per annum capacity at that site.

Reports suggest that, the lease granted to SAIL by the state government last week, is for the mine that is spread over 871 hectares with estimated reserves of around 150 million tone of iron ore. According to the management it has plans “to produce 5 mtpa iron ore a year from the mine and set up a pellet plant with 2 mtpa capacity with an estimated investment of Rs 700-800 crore”.

The company will start seeking requisite clearances soon after getting the Letter of Intent from the Rajasthan government and production from the mine is likely to start in 3-4 years. The Bhilwara mine would help SAIL to partially meet its increased iron ore needs as the company is in the process of hiking its steel-making capacity to 24 mtpa by next year from 14 mtpa at present. It generally requires 1.6 tonnes of iron ore for producing every one tonne of steel.

SAIL never has never had iron ore problem and sources all its needs from captive source. Last year, it produced 21.48 MT ore to make 13.4 mt crude steel. However, going by the rate at which capacity addition is happening, its need for the key input would also rise in the same proportion. The Bhilwara mine would thus prove helpful for the company in the days ahead.

SAIL has also prepared a blueprint to raise its steel manufacturing capacity to 50 mtpa by 2025, involving an investment of Rs 1.5 lakh crore. To meet this growing need, it has started scouting for iron ore mines in Chhattisgarh, Madhya Pradesh, Maharashtra, Odisha and Karnataka. It is also expanding capacities of its mines, as part of its Rs 72000 crore ongoing expansion and modernisation plans. In Kiriburu, the capacity is being raised to 5.5 mtpa from 4.25 mtpa now. The capacity of Meghahatuburu mines is being raised to 6.5 mtpa from 4.3 mtpa now and in Bolani, the target is to raise it to 10 mtpa from 4.10 mtpa now.

The capex made in difficult macro-economic times would always be helpful as it is done at a lower cost. Hence it would be beneficial for the company in long run. Apart from that the condition of the steel sector is improving with few other metal stocks gaining momentum. We feel the stock of SAIL has been hammered on the bourses and the negatives seem to be discounted in that hammering. But no need to jump all guns, as we expect some minor decline from these levels. Investors can slowly accumulate shares at current levels.