Bhushan Steel expects to sign a memorandum of understanding with the Odisha Government in the current quarter, which will pave the way for the company mining 3.5 million tonnes of iron ore a year for its new steel projects.
The company is building a 2.5-mt steel plant which is expected to get commissioned in the third quarter of this year, sources say.
Bhushan is building a fully integrated steel plant in Meramandali in Odisha.
Phase I (0.3mtpa) of this expansion was completed in 2009 while phase II (2mtpa) was completed in 2009-10. Work on phase III is in full swing and the management expects it to commission in the current financial year. When completed, the company will have a total capacity of about 5.2 million tonnes, sources say.
The mining agreement with the Odisha Government will be a “separate arrangement which the Government will be doing for the company, and as such, will not fall under the volume restriction on merchant mining in the state,” says a recent research report of Edelweiss.
Interest costs dent profits
The company has borrowed substantially for funding the expansion programme. As at the end of last year, its borrowings stood at Rs 18,963 crore, which is expected to go up to Rs 20,913 crore in the current year.
The company’s first quarter profits dipped 1.9 per cent year-on-year, and 38 per cent quarter-on-quarter thanks mainly to mounting interest costs.
Net profit for the quarter stood at Rs 206 crore, compared with Rs 210 crore in the corresponding quarter of last year and Rs 331 crore in January-March 2012. Interest costs rose 75 per cent to Rs 378 crore against Rs 215 crore in the first quarter of 2011-12.