Revival of Like-by-Like a Decent Prospect
JSW Steel, which has big brownfield expansion plans, is reportedly making a bid for Bhushan Steel, in tie-up with Piramal Enterprises’ stressed assets fund with Bain Capital. With its solid presence in high-end steel, JSW Steel is a beneficial suitor for Bhushan Steel, which is heavily into auto-grade steel, and so, likely to offer a better acquisition price as well. Acquisition by another steel company would be preferable to acquisition by a financial investor. A quick turnaround of stressed assets like Bhushan Steel is desirable, so that valuable assets are quickly deployed productively. And Bhushan Steel is among 12 stressed assets identified by the Reserve Bank of India for immediate bankruptcy resolution. Meanwhile, the steel industry in India has reportedly emerged as one of the world’s largest, with production capacity of over a 100 million tonnes per annum, which is expected to touch150 MT by 2020. However, steel is a capital-intensive cyclical industry, and we need more brownfield expansion to reap scale economies. Hence the greater need for intra-industry merger and acquisition activity in the steel industry here. It is also welcome that UK-based metals specialist, Sanjeev Gupta of Liberty House, has reportedly bid for stressed assets here and has plans to invest in sectors such as renewable energy, shipping and ports, and infrastructure. Meanwhile, JSW Steel has outlined its strategy to have 40 MT of steel capacity within a decade, with focus on brownfield expansion. It has also tied-up with JFE Steel Corp of Japan to make auto steel. As for Bhushan Steel, it is into cold-rolled products and does make the widest sheets, but seems to have operationally slipped in the face of lacklustre demand in the trough of the steel cycle. When the chips are down, things can only look up.