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C.R. Sukumar

The manufacturing unit of Lanco Kalahasthi Castings at Rachagunneri near Tirupati

SRI KALAHASTHI (AP), March 21

FOLLOWING the substantial acquisition of equity by the Kolkata-based Electrosteel Castings Ltd (ECL) recently, two of the Lanco group companies — Lanco Industries Ltd (LIL) and Lanco Kalahasthi Castings Ltd (LKCL) — have embarked upon a major expansion programme to double their capacities.

While LIL, a Rs 98-crore listed company, is engaged in the production of pig iron and portland slag cement, LKCL, a Rs 100-crore closely held company, is into the business of castings and spun pipes.

During the first week of this month, the Lanco group had entered into a strategic alliance with ECL, wherein the latter would acquire controlling stake of 51 per cent in LIL and 49 per cent holding in LKCL.

Talking to reporters at the Lanco Industrial Complex at Rachagunneri near Kalahasthi in Chittoor district of Andhra Pradesh, the Lanco group director, Mr L. Madhusudhan Rao, said both LIL and LKCL would take up a two-phased expansion to upgrade the pig iron and ductile iron capacities to 1.8 lakh tonnes per annum from the current level of 90,000 tonnes.

While the first phase would enable them to take the capacity to 1.5 lakh tonnes, the second phase would result in a capacity of 1.8 lakh tonnes. According to Mr Madhusudhan Rao, both the companies would have the benefit of ECL's experience and engineering expertise in upgrading the manufacturing facilities.

ECL, the Rs 550-crore company, currently enjoys over 65 per cent of market share in cast iron spun pipes and over 90 per cent share in ductile iron spun pipes, according to its Managing Director, Mr Umang Kejriwal. It has a ductile iron spun pipe and pig iron production capacity of 2-lakh tonnes and an installed capacity of 1.5 lakh tonnes for cast iron spun pipe at Khardah in West Bengal and Elavur in Tamil Nadu.

On the major reasons for forging an alliance with ECL, Mr Madhusudhan Rao said the ductile iron spun pipe capacity in the country was around 3.5 lakh tonnes, while the domestic demand was only around one lakh tonnes.

According to him, there were many entry barriers in the domestic ductile iron spun pipe industry such as ISO-9002 certification, ISI certification and three to five years of manufacturing experience. Stating that the situation was similar in the export market, he said the alliance with ECL would enable the Lanco companies to address these deficiencies since the Kolkata major had already established its brand globally.

KPMG, which was appointed by the Lanco group companies as their advisors to bring in strategic partner for ductile iron business, had recommended strategic alliance with Electrosteel after negotiating with several players in the market during the last 12 months.

On the need for expansion of capacities in the overcrowded market, Mr Rao said the current pig iron capacity of Lanco at 90,000 tpa was not sufficient for internal consumption of LKCL and the units of Electrosteel. The expanded capacity for ductile iron spun pipes was, however, aimed at the export market.

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