Overview
I am pleased to present the performance of our Company during the last financial year.
At Beekay Steels, the resilience in our performance – the Company reported its
second-best performance ever – was the result of the optimisation of its business and
treasury investments. For a focused steel Company like ours, it would have been usual to
plough every rupee of earned surplus into the business. During the last few years, the
Company selected otherwise; it selected to build its treasury book instead, creating a
war-chest for inorganic growth opportunities and lubricating the Company's financials
during a slowdown.
I am pleased to communicate that the Company enhanced net worth by 16.27% to Rs. 942.78
Cr; book value per share strengthened from Rs. 425.15 Cr to Rs. 494.33 Cr. The Company's
treasury returns played an effective role in protecting the Company during the last
financial year: treasury returns from other Other Income increased from Rs. 13.89 Cr in FY
2022-23 to Rs.48.54 Cr in FY 2023-24; the proportion of treasury returns in the EBITDA was
7.5% in 2023 and increased to 27% in 2024. This prudent role of treasury returns provided
the Company with the resources and competence to weather the sectorial slowdown and be
prepared for arebound.
Expansion
One of the most ambitious developments at the Company during the last two years was the
acquisition of a plant that had been lying closed for years.
In March 2022, the Company acquired the assets of Maheshwari Ispat through an open
bidding attempt. The assets had been disused for more than ten years. What attracted the
Company was the evident arbitrage – an asset value of Rs. 1,000 Cr was available for
just Rs. 225 Cr – and that the new assets would complement the Company's existing
business.
The acquisition covered a large products basket comprising direct reduced iron, captive
power plant, ferro alloys, steel melting shop, mini blast furnace, steel rolling mill and
coal washery. The complement of these products was designed to enhance the scale, respect
and profitability of the Company. The acquisition was designed to be
business-strengthening from day one. When fully commissioned, the acquired assets would
extend Beekay's portfolio into new areas; the consolidated portfolio would serve as the
foundation to achieve for the business an extensive integration where the manufacture of
one product would become the raw material for another.
Besides, the Company would be positioned to enhance profitability on account of a
logistical advantage. The proximity of this southern Odisha location to the Company's
existing Vizag manufacturing plants would make material transfers quicker and economical;
the entry of the Company into ferro alloys manufacture would represent a portfolio
addition; the waste heat recovery process would moderate electricity costs; the
manufacture of fast-moving products (ferro alloys, billets, TMT bars and pig iron) would
enhance cash flows. The commissioning of Phase One of this game-changing acquisition
encountered an extended delay during the year under review. By an initial estimate, the
Company had expected to commission this integrated complex in FY 2023-24; the phased
commissioning of this facility commenced only during the first quarter of the current
financial year. As the units of the different products get progressively commissioned, the
plant will scale and move towards its desired potential. However, the plant warranted a
larger work and cost outlay; your Company already embarked on a debt repayment of Rs. 21
Cr, validating its disciplined resource management.
Reconfiguration
During the course of the last financial year, your Company embarked on a significant
decision related to the acquisition.
The Company selected to scale the manufacturing capacities related to the diverse
constituent units. The Company decided to accelerate the onset of Phase 2 starting in the
current financial year. As a part of Phase 2, the Company increased the manufacturing
capacity of its direct reduce iron (DRI) unit from 400 TPD (as envisaged in Phase one) to
1,400 TPD in Phase 2.
The Company inherited a steel melting shop that was inadequately sized with the needs
of a growing steel market. The Company scrapped this inherited unit; during the last
financial year, it embarked on the phased commissioning of six furnaces of 20 Tonnes each.
The first two furnaces are expected to be commissioned late in the current financial year
(which will generate 10,000 billets to feed out downstream TMT output) while the rest are
likely to be commissioned in the next financial year. The Company intends to commission a
billet manufacturing capacity of 30,000 MTPA, which will be adequate in feeding our
enhanced downstream TMT bar manufacturing capacity of 3,50,000 MTPA (earlier envisaged at
2,00,000 MTPA).
Watershed
At Beekay Steels, the Phase 2 programme in the turnaround of our acquired unit
represents our most ambitious initiative for two reasons.
One, the Rs. 725 Cr capacity expansion programme in Phase 2 represents the most
ambitious initiative taken by the Company in its existence. This part of the capacity
expansion will more than double the Company's gross block from what it stood on 31st
March, 2024. This is the largest single project undertaken by the Company, putting a
premium on asset negotiation, resource mobilisation, resource balancing and timely project
implementation.
Two, considering the size of the project, it became imperative for the Company to
mobilise long-term debt. The Company expects to fund Phase 2 with a debt outlay of Rs. 500
Cr, the largest long-term debt taken by the Company in its existence.
The combination of the two realities – project cum debt outlay – are
unprecedented in the Company's existence and represent a break from the Company's past.
Holistic de-risking
In the opinion of the management, in a rapidly transforming steel sector – marked
by the need for scale in exchange for economies - Phase 1 represented the right unit and
product mix but sub-optimal capacities. For the acquisition to generate desired
efficiency, the management needed to graduate beyond intended capacity creation to the
next level. This resulted in the Company selecting to revise product capacities with two
objectives – to match the prevailing capacities cum economies for similar secondary
steel manufacturing capacities and size them proportionately with the objective to enhance
capital efficiency. Besides, the Company scrapped the erstwhile steel melting shop for a
new 120 Tonnes capacity to be commissioned in phases.
The management of your Company has been asked whether this substantial increase in
manufacturing scale was at all necessary in Phase 2, considering that it entailed the
largest single investment outlay in the Company's existence. The scale of this expansion
was necessary and was achieved bottom-up; the management arrived at a precise
understanding of the kind of capacity would be necessary to be created to arrive at
benchmarked per Tonne operating costs. The proposed and revised manufacturing capacities
will empower the Company to be competitive as soon as these capacities are commissioned,
creating a virtuous cycle of profitable growth and business reinvestments. The Company
would have made itself progressively uncompetitive if the upward revision in manufacturing
capacities had not been carried out. In view of the size of the Phase 2 outlay, the
Company has secured its prospects for sustainable growth.
The other de-risking feature of your Company comprises the integration of various
manufacturing capacities within the Southern Odisha unit. The synergies likely to be
derived will be from the following features: the location of these facilities proximate to
critical steel making resources (iron ore and coal) and a port; bunched facilities within
a single location, resulting in logistical efficiencies; the sequential integration by
which one end product becomes the raw material of the next product, making it possible to
insource extensively and capture value-addition from within the Company's existing value
chain; the ability to either insource or sell in the marketplace in a merchant capacity,
enhancing portfolio flexibility; the capacity to capture precious steam from the system
that could help the Company moderate its power costs and carbon footprint.
Conclusion
Following the completion of Phase 2 in about five years, your Company is expected to
treble revenues (based on today's relatively modest realisations). This sustained growth
is expected to graduate Beekay Steels into a fairly sized secondary steel company,
positioned to enhance value for stakeholders in a sustainable way.
Suresh Chand Bansal
Chairman