India's big plans for steel

Mon, 30 Nov 02:30 pm

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Reports of India's GDP growth estimates being revised upwards seem to have enthused investors who are lopping up index heavyweights across the board. Currently, stocks from the metal, telecom and IT sectors are leading the pack of gainers, while select stocks from the auto and banking sectors are trading relatively weak.

The BSE-Sensex is trading firm, up by around 270 points, while the NSE-Nifty is up by around 76 points. The BSE-Midcap and BSE-Smallcap are also trading firm, up by around 1.4% and 1.8% respectively. The rupee is trading at 46.45 to the dollar.

According to a leading business daily, in order to boost the growth of Indian steel sector, the government is planning to launch ultra mega steel projects (UMSP). The government aims at accelerating the creation of large steel capacity in the country in order to meet the growing demand. The steel ministry together with state-government will chart out a plan for setting of these plants with a minimum capacity of 10 million tonnes (MT). It will identify 4 to 5 locations close to the iron-ore mining sites. The government will be responsible for creating necessary infrastructure, getting clearances and assuring raw-material (coal and iron-ore) supply. The development will be done by public and private companies based on a competitive bidding process.

We believe this is a positive move as it will reduce unnecessary delays and bottlenecks linked with standalone green-field projects. It may be noted that problems in land-acquisition, raw-material security and other hurdles had compelled companies like Tata Steel and ArcelorMittal to put many of their projects on hold. If the government is able to overcome these hurdles, India may get closer to achieving the target of 120 MT of steel production by 2012.

Healthcare stocks are trading firm. Last week, the drug regulator, FDA started inspecting Lupin's upcoming facilty at Indore in MP. On getting the USFDA's approval the company can start selling oral contraceptive (OC) drugs produced at the plant in the US market. The company has not received any observation for the same so far. The audit is expected to complete in a couple of days.

It may be noted that the OC market is a lucrative segment in the US, growing at 8% annually. It is currently worth US$ 3.5 bn and brings a new revenue stream for the company. Lupin expects to generate revenues of US$ 100-200 bn from the sale of OC drugs in the US market in the next couple of years. Thus, the US FDA approval is very important for Lupin as it plans to start selling OC drugs in the US from next fiscal.