Southern Iron and Steel CMP: 31 , BSE 530491

Expansion Underway

1. The Company is implementing the expansion project to expand the capacity from 0.3 million tonnes per annum (mtpa) to 1.0 mtpa involving an estimated capital expenditure of Rs 10175 million. The expenditure incurred till date is Rs 8620.6 million which is accounted under Fixed Assets, Capital Work in Progress and Pre-operative expenses.

2. Construction works of 30 MW Coal Based Power Plant acquired by the Company from M/s. JSW Steel Ltd., ASP, and Coke Oven Plant-Phase 1 have been completed during the year and these Plants were under trial run upto March 31, 2007. New Sinter Plant II, Blast Furnace II, steel Melt Shop II, Coke Oven Plant-Phase II and 30 MW Gas Based Power Plant are expected to be commissioned during the period April 2007 to September 2007.

Debt being Converted into equity at Rs 52 per share.

3. As per Corporate Debt Restructuring Scheme (CDR) approved for the Company by the CDR Empowered Group, Convertible Term Loans of Rs 3953.737 million are convertible at the option of the company into equity shares at a premium of Rs. 52 per share. Out of the above amount, Rs 1589.346 million have been converted into 25634608 equity shares on April 1, 2007.

4. Major Shareholders:

LMW-1.29 crore shares (4.84 per cent of the Equity); Lotus Global Investments- 80.5 lakh shares (3.02 per cent); ICICI-48.38 lakh shares (1.81 per cent).

Promoters Group: 40.7 per cent

Sajjan Jindal 6.13 crore shares (22.99 per cent), TIDCO 2.72 crore shares (10.2 per cent), Sangita Jindal 61.6 lakh shares (2.31 per cent), Tanvi Jindal 30 lakh shares (1.12 per cent), Tarini Jindal 30 lakh shares (1.12 per cent) and Vrindavan Services 78.8 lakh shares (2.95 per cent).

The turnaround story of Southern Iron and Steel Company Ltd (Siscol) in Mecheri in Salem district (Tamil Nadu), originally promoted by the LMW group, in a short span of about 30 months after it was taken over by the O.P. Jindal Group in 2004, is a confirmation of what core competency could deliver.

When the Jindals took over Siscol, it had accumulated loss of more than Rs 350 crore. But the loss has come down by Rs 130 crore since the takeover and the company is confident of wiping out the entire loss by 2008-09. Siscol, which is currently implementing a plan to expand capacity from 3 lakh tonnes to 1 million tonnes at an investment of about Rs 1,320 crore, has set its eyes on further expansion to 2-3 million tonnes that would catapult it among the top steel makers in the country. The plant has come up in a place where the basic raw materials are scarce. Its major advantage is that it is located close to the automobile hub of the country — Chennai-Hosur-Bangalore -- and in the coming years, it would increasingly focus on meeting the requirements of the auto industry and the oil and gas sector that would provide it with higher sales margin. In an interview with Business Line, Mr J.K. Tandon, Chairman, Siscol, shares his views on the turnaround and the road map for its future. Excerpts from the interview: How long would it take to wipe out the losses? Jindal South West (JSW) group took over the management of Siscol with accumulated losses of Rs 356 crore as on June 30, 2004 .The accumulated losses have come down to Rs 226 crore as on March 31, 2007, with profits of Rs 130 crore in the past 33-month period. The remaining loss may be wiped out by 2008-09.

What is unique about this turnaround? The plant, put up during the 1990s, over a period of time ran into huge cash losses that resulted in severe financial crisis. The net worth of the company was fully eroded and it was declared `sick company'. On insistence from the lenders, Siscol was taken over by the JSW Group which immediately took action to expand production capacity from 0.30 million tonnes to 1 million tonne and by adding more value-added products to its product mix with a view to improving the plant viability. Although, by and large, the stable steel market has given a boost to the performance of the company, the turnaround is due to meticulous planning and by taking the following major steps: Augmentation of the existing facilities by immediate investment of over Rs 10 crore on acquisition so as to make the plant yield 0.3 million tonnes rated capacity which it could never achieve since inception; putting up captive power plants and captive coke oven plant to ensure cheap power and coke to cut the costs. Usage of all waste gases (earlier being flared up) as a fuel within the plant which not only reduced furnace oil consumption but also helped in pollution control; increasing special steel production to 40 per cent and developing new special steel quality grades, to get maximum sales contribution from automobile OEMs and reducing the sale of construction materials and pig iron etc which were earlier yielding low margins; and extending marketing base up to Gwalior and Faridabad in North India and
Pune and Rajkot in western India and also tying up the supplies of steel with reputed OEMs in the case of special steels and mega construction projects for TMT. Due to these steps, the company has been able to maintain its costs despite steep increase in coke prices in international market and increase in prices of iron ore/fines in the domestic market that constitutes almost 65 per cent of cost of production. The company for the first time has earned net profit exceeding Rs 55 crore during 2006-07. How do you plan to fund your next expansion? Funding for the proposed next expansion plan would be through term loans/internal accruals and equity arrangements (if need be). The present equity base for the 1 million tonne plant is quite reasonable. Do you rule out further equity dilution? Or would you go for another equity/rights issue? Equity dilution would be minimal as funds would be available through internal accruals from large expected profits. Still keeping in view expected good profits, servicing large equity base through right issue etc, if need be, should not be a problem as additional equity shall get serviced through additional profits from capacity expansion. Jindal group has a pan-India presence in the steel industry. In the group's overall scheme of things, where does the Siscol project stand? Siscol will cover the absence of any alloy steel producing facilities in the group to meet niche market requirements. In terms of turnover, what would be the net sales in a full year once the current expansion project is fully completed? With 1 million tpa capacity, our turnover should increase significantly depending on product mix and may be of the order of Rs 3,500 crore. This should happen during 2009-10. If we look at 1 mtpa we will be not very big but if we are able to change our product mix which we are planning and go for bulk of alloy steels we will be among the first three. What about plans for exploitation of iron ore available in Salem and Tiruvannamalai districts? We hope that mines in Salem and near about areas will be opened up in the near future as without that further growth of Siscol will not be possible at required pace. Environment studies are being done and adequate safeguards and care will be taken to prevent any adverse effect on environment. Mining technology has also developed enough and we will use the latest technologies to ensure that no harmful effect would come out of mining. Opening up of new mines will be the one single important factor in the future growth. The steel industry is on a roll with demand surging. How long do you expect the party to last? I wish steel demand to grow continuously in India which means GDP has to grow continuously. A growth of 1 percentage point in GDP results in 1.08 percentage point growth in steel demand. As in China, where steel demand is constantly growing for the last 10-15
years, there are chances that it should happen in India also though at slower pace. Indian steel companies have been on an acquisition spree abroad. Do you fear that the robust demand for steel in India would make foreign steel makers eye Indian companies? If so, what would be your strategy to counter that? Once we become a global economy, which we are, there may be danger of foreign companies entering the market to merge, acquire some of the existing industries. But POSCO model may act as a big deterrent as we in India have learnt to be patient with the system and then grow which is possibly not in sync with other developed economies. I am not very worried on this account. At present, Indian companies are going out to buy and acquire. Possibly steel is not a very attractive industry for them as it needs lot of hard work, sweat and dirtying of your hands.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

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