Raymond transfers steel unit for Rs 420 crore

The Raymond scrip on the Bombay Stock Exchanged has been steadily moving up for the last one month and it has already crossed Rs 100 mark touching Rs 108.40 today. The huge cash flow from hiving off the steel division will reduce the liquidity problem for the company.

The Singhania-controlled Raymond group has mainly three divisions, textiles, cement and steel, out of which steelwill be transferred to the new venture. The company’s performance has been adversely affected by the general slowdown in the economy and the strike at its major textile plant at Chindawara also affected the performance. Slackness in demand and lower prices for most of its product when the cost of operation was going up due to heavy interest burden has affected the company’s bottomline. The company’s expansion of the steel division did not yield much dividend as the steel sector has been under the grip of demand recession.

The commissioning of the new steel plant coincided with a slump in demand for cold rolled plates. Low cost resulting from lower duty on imported products also resulted in a considerable fall in domestic prices of the product. While the quality of new silicon steel produced by the division was well received by the market, in its first full year of operation, Raymond faced sluggish demand in general business as there was a mere 2 per cent increase in sales as against 15 per cent increaseearlier.

The electrical equipment industry which is the main user of silicon steel also witnessed negative growth affecting the company’s sales. The slump in demand for cash hungry state electricity boards due to resource crunch and phasing out of new projects also affected demand for this type of steel. As against an installed capacity of 65,000 tpa for CR silicon steel project, the production was only at 12.3 per cent of the installed capacity. The sales from this division was Rs 21 crore during March 1997 as against a total project cost of Rs 183 crores. Even in the CR steel strips, capacity utilisation was only 55% (82033.36 TPA) against an installed capacity of 150000 TPA.

The plants of the steel division are located at Thane, Ratnagiri and Wadivarhe in Maharashtra and Pitampur in Madhya Pradesh.