India's third-largest steelmaker JSW Steel Limited has decided to acquire Welspun Energy Ltd’s entire stake in sponge iron firm Welspun Maxsteel Limited for an enterprise value of RS 1,000 crore (around $163.6 million), along with net current assets, according to a statement.
The acquisition, which is subject to regulatory and customary closing conditions, is part of the company’s plans to cut its raw material costs.
Welspun Maxsteel operates its manufacturing unit in Raigad, Maharashtra which is close to JSW Ispat’s steel plant at Dolvi. The deal will help JSW Steel’s Dolvi plant source a continuous supply of cheaper raw material as it plans to expand capacity to 5 MTPA.
Currently, Welspun Maxsteel has an installed capacity of 0.9 MTPA at the gas-based DRI plant, with a captive jetty and a captive railway siding.
“This acquisition is value accretive to JSW Steel due to synergies in supplying surplus pellets to Welspun MaxSteel and use of DRI from WMSL in company’s steel-making operations at Dolvi plant,” Seshagiri Rao, Joint MD & Group CFO, JSW Steel, said in the statement.
JSW Steel’s output at the10 MTPA plant at Vijayanagar in Karnataka has been hurt by the shortage of key raw material – iron ore – due to the mining ban in the state to curb illegal mining. Therefore, the company is planning to augment its capacity in Dolvi to supply to the western and northern markets.
JSW Steel, with an installed capacity of 14.3 MTPA, has set a target to increase its steel production to 40 MTPA over the next decade.
Ernst & Young and Luthra & Luthra carried out financial and legal due diligence, respectively, for the company.
(Edited by Joby Puthuparampil Johnson)