Sujana Metal Acquires Three Steel Firms in $400 Million Expansion and Backward Integration Plans

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Researched by Industrial Info Resources (Sugar Land, Texas)--As part of its backward integration and expansion plans, Sujana Metal Products Limited (Hyderabad, Andhra Pradesh), a leading secondary steel manufacturer in India, recently acquired three steel units that will enable it to cater to the infrastructure and realty markets in southern India. Sujana plans to invest $45 million toward the acquisition, modernization and expansion of the units: Glade Steels (Hyderabad), Saritha Steels (Visakhapatnam, Andhra Pradesh) and Sree Ganga Steels (Chennai, Tamil Nadu). These acquisitions, which will increase Sujana's production capacity by 300,000 tons per year to a combined 728,000 tons per year, are in line with the company's plans to achieve its target capacity of 1 million tons per year of steel production by 2010. Sujana has acquired five companies in the last 12 months and is in the process of evaluating more for potential acquisition.

In February, Sujana became the first company in India to launch ready-to-use steel products for commercial use in the infrastructure and construction industries. The range of products includes thermo-mechanically treated steel products for the construction industry. These products are known to have several benefits, such as accelerated project work, elimination of waste and reduction of labor costs, which translate into immense savings. The acquisitions will enable Sujana to have the country's widest range of mild steel long products in its portfolio, including the thermo-mechanically treated steel bars ranging from 8 to 60 millimeters (mm); and heavy, medium and light structural steel products like angles, bars, channels, I-beams, rounds and other products up to 500 mm.

Sujana is also planning to diversify into iron ore mining and is likely to acquire a Hyderabad-based company with a sponge-iron manufacturing unit of 67,000 tons per year. With plans to close the deal within the next three months, Sujana is looking to expand the capacity of the acquired unit to 100,000 tons per year. It plans to invest $37.5 million over the next three years to procure iron ore from Bellary. The company is also scouting for iron ore mines in Indonesia. It is in talks with an Indian company to set up a billet-manufacturing plant in southern India.

In February 2008, Sujana announced plans to invest $400 million toward expansion initiatives to achieve a sales target of $775 million and profitability levels of $75 million by 2010. The expansion is being carried out in two phases. In the first phase, the company will invest $200 million procured through equity from promoters, long-term debt and internal accruals. The company is evaluating options for funding its proposed investment of another $200 million in Phase II. Sujana plans to introduce more value-added products, including ready-to-use steel and structural steel, to the market. The company is also aggressively pursuing backward integration as a strategy to gain control over all stages of the manufacturing and supply chain.

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