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Mohan Padmanabhan

KOLKATA, Nov. 14

THE cash-strapped Lanco Kalahasti Castings Ltd (LKCL), now under the management control of Electrosteel Castings Ltd (ECL), is set to become self-supporting and even return to the dividend list by 2004-05.

Talking to Business Line here recently, Mr S.Y. Rajagopalan, Director, Finance of ECL, said some Rs 35 crore might be required for effecting capacity expansion in LKCL in the immediate future.

ECL, in March this year, acquired 46.43 per cent of the paid-up equity in Lanco Industries Ltd (LIL) and 48.89 per cent in LKCL at a total cost (only towards equity) of Rs 70 crore.

While LIL produces pig iron and slag cement, LKCL produces ductile iron (DI) pipes and iron castings.

Tracing the developments that led into the acquisition of LKCL's DI pipes unit, Mr Rajagopalan said it was a strategic investment by ECL on future growth of the company, with an eye on exports. He said the envisaged capital expenditure on LKCL was slightly less than what it would have cost in a greenfield venture, and "this suited the company's plans to create capacity first and then try to expand the market thereafter".

Commenting on the organisational mindset of ECL, Mr Umang Kejriwal, Managing Director, said during 2001-02, a "180-degree change'' in ECL's perspective had been effected, in which the increased capacity would enable ECL to strengthen coverage of fixed costs, which in turn would help the company reduce selling price and thereby enlarge the market.

Mr Rajagopalan said at this point, it was important to look beyond the performance of the current year and see where ECL was headed over a five-year timeframe. Admitting that the Khardah unit (in West Bengal) was now hamstrung by space constraint, effectively blocking any capacity expansion, he said LKCL could well step in as the future base for widening both the export horizon and the domestic market, given its proximity to Madras port and the major export markets of East and South-East Asia.

Iron ore of required grade for pig iron production (suitable for production of DI pipes) can also be easily procured from the nearby Hospet area. LKCL has captive limestone at Tippalur and Kasipet (both in Cudappah district). The monthly requirement is said to be around 10,000 tonnes. Expecting 2003-04 to be the most productive year for LKCL, Mr Rajagopalan said some more balancing equipment, requiring an investment of under Rs 10 crore would be required. In the case of LIL, which makes pig iron and cement, he said steps like relining of the furnace by way of modernisation of the plant, at a cost of Rs 6 crore, would have to be initiated soon. Asked if LKCL would be fully self-supporting in 2004-05, he replied in the affirmative.

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