ESL Steel Limited, an Integrated Steel Producer, was incorporated in 2006 as a Public Limited Company with operations in Bokaro, Jharkhand, India. In June 2018, Vedanta Limited acquired the management control of ESL through the Corporate Insolvency Resolution Process initiated for addressing the resolution of non-performing assets of the Indian banking system. The company has set up a green field integrated manufacturing facility, which is currently commissioned at a capacity of 2.5 MT per annum. Vedanta Limited parent of ESL Steel has been quite successful in turning around ESL Steel’s business in less than a year since its acquisition. ESL Steel’s parent Vedanta Limited aims to scale up its steel operations in Bokaro through brownfield expansion and be amongst the top steel producers in the country eventually keeping the relisting plans in mind.

The Global Steel Industry

Like many other industries, the global steel industry witnessed a year of two halves in CY 2020. A sharp decline in both steel demand and production in the first half, and a sharper-than-expected recovery in the second half. The short-term disruptions, however, inflicted significant pain on economies where the manufacturing sector was already under enormous stress. The recovery of steel-consuming industries such as automobiles has been faster than expected, and as a result, CY 2021 started with a firm steel demand and market prices. As economies around the world build back, infrastructure will be a key enabler for growth.

Global steel production in CY 2020 marginally dropped by 0.9% to 1,864 MnT from 1,880 MnT in CY 2019 (Source: World Steel Association). Steel demand fell by 0.2% to 1,771.8 MnT from 1,775 MnT in CY 2019.

Indian Steel Industry

A dynamic external environment, and enabling pricing scenario, and the release of pent-up demand majorly defined FY 2020-21 for the Indian steel industry. While the initial quarter of the fiscal proved to be an unprecedented slowdown with consecutive lockdowns, the rest of the year witnessed a high-powered demand revival in consumption industries such as automobiles. Demand for appliances improved due to the large-scale shift towards work-from-home, and construction activity picked up with government expenditure. This mirrored the global scenario, as demand picked up after liquidity was pumped into the economy together with a flurry of infrastructure project announcements.

Production Facility of ESL Steel Ltd

ESL Steel’s production unit primarily consists of Sinter Plants, Coke Oven, Blast Furnaces, Oxygen Plant, Basic Oxygen Furnaces, Billet Caster, Wire Rod Mill, Bar Mill, Ductile Iron Pipes Plant and a Power Plant with a total production capacity of 2.5 mtpa.

Product Portfolio & Brands ESL Steel Ltd

ESL Steel's product range includes Pig Iron, Billets, TMT Bars, Wire Rods and Ductile Iron Pipes. ESL Steel has recently introduced its rebranded product range in the market under three new brands, V-DUCPIPE for Ductile Iron Pipes, V-XEGA for TMT Bars, and V-WIRRO for Wire Rods.

Altius Decode's

In FY21, ESL Steel Ltd achieved the lowest ever cost during the year since its acquisition resulting in a higher EBITDA margin.

EBITDA margin of ESL Steel increased 28% y-o-y compared to the INR 5,514 per tonne in FY20 to INR 7,070 per tonne in FY21.

Reasons of increase in EBITDA Margins

Average sales realization improved by 3% y-o-y from INR 35,109 per tonne in FY2019 to INR 36,197 per tonne in FY2021

Cost Reductions by 1.5% from INR 29,563 per tonne to INR 29,127 per tonne.

ESL Steel unlisted share price jumped from Rs 32/sh in April 2021 to Rs 65/sh in July 2021.

Production Capacity & IPO Updates of ESL Steel Limited

ESL Steel’s production capacity also increased to 1.2 mtpa (FY’19) vs. 2.5 mtpa, according to the current design capacity.

In all likelihood, Vedanta Group led by Mr. Anil Agarwal has ESL Steel IPO plans in mind and to get it listed back on the bourses after the turnaround has happened.

Sauvick Mazumdar, CEO, of Vedanta Iron & Steel elaborated on the expansion plan of ESL Steel Limited for the medium term. He went on to disclose that ESL Steel is ready with the blueprint for taking the capacity further to 5 mtpa. Vedanta & ESL’s management believes the further capacity expansion will require another Rs 8,000-9,000 crore.

Peer Comparision Of ESL Steel Limited with major players like JSW Steel Ltd & Tata Steel Ltd

ESL Steel's share price is trading at very attractive valuations, PE at 3.32x, Price to Sales at a meagre 0.18x & Price to Book Value of ESL Steel Ltd stands at jus 1.46x.