Visa Steel Ltd – Not Rated

CMP Rs42 

We visited the Kalinganagar plant of Visa Steel Ltd, which is all set to transform itself into an integrated special steel manufacturer from a mere metallics player. The company currently has 0.22mtpa of pig iron, 0.3mtpa of sponge iron, 0.4mtpa of coke-making facility and 0.05mtpa of ferro chrome unit. Visa Steel is in its last phase of Rs20bn capex plan and expects the 0.5mtpa stainless steel unit to be operational by December ’10. It is also setting up a 25MW coal-based power plant to meet its future power requirement from the rolling mill. Except the second DRI kiln, all the units are currently operating at ~90% capacity. The company has managed to expand its OPM from 12.1% in Q1 FY10 to 19.9% in Q3 FY10 by increasing its utilization rates and stabilizing product realisations. However, we are concerned about the high debt level (FY09 net D/E stood at 3x), which is expected to increase further over the next two years.