ArcelorMittal (MT - Analyst Report) has signed a Memorandum of Understanding (“MoU”) with India’s leading steel company – the Steel Authority of India (“SAIL”) – for setting up an automotive steel producing unit in the country, under a joint venture arrangement.

The MoU was jointly signed by Lakshmi Mittal, Chairman and CEO of ArcelorMittal, and C.S. Verma, Chairman of SAIL, in the presence of Rakesh Singh, Secretary to the Government of India, Ministry of Steel, and Aditya Mittal, ArcelorMittal CFO and CEO ArcelorMittal Europe.

The MoU marks the initial step of the process of establishing a joint venture between both the companies. Per the agreement, an advanced cold rolling mill and other downstream finishing facilities will be set up in India to provide technologically advanced steel products to the nation’s fast growing automotive sector.

The rising demand in the nation is backed by the “Make in India” program launched by the government. India is projected to become the world’s fourth-largest automobile manufacturing nation by 2020, growing from 3.5 million units at present to over 7 million units. Thus, automotive producers are striving to increase their presence in the automotive market to aid India’s transformation into a global manufacturing hub.

According to Rakesh Singh this collaboration between the two companies will help the nation meet the objectives of its “Make in India” program which was launched by Prime Minister, Narendra Modi. In the long run, this initiative will reduce India’s dependence on imports. It will further help transform the nation into a hub for automobile export manufacturing facilities to cater to the international market.

According to Lakshmi Mittal, the automotive sector is a highly strategic and significant market for ArcelorMittal . He added that ArcelorMittal anticipates business growth through its global automotive strategy as India is one of the world’s fastest growing automotive markets.

The authority at SAIL stated that the company is nearing completion of its modernization and expansion program to increase its hot metal manufacturing capacity from 14 million tons per annum (“MTPA”) to 23.5 MTPA, representing a significant jump in the production of value-added steels.

Moreover, SAIL is working on its Vision 2025 plan, which would further boost production capacity to 50 MTPA. The company is placing greater emphasis on product enrichment in its Vision 2025 plan and expects this collaboration with ArcelorMittal to aid in the production of high-quality automotive steel in India. Additionally, SAIL will be able to meet the high-quality steel requirements of the rapidly growing infrastructure and manufacturing sectors in the nation.

Thus, significant demand for high-quality steel products in India, coupled with the restrictions on the nation’s existing domestic automotive steel production capabilities, offers a significant business opportunity for both the companies.

ArcelorMittal currently carries a Zacks Rank #4 (Sell).

Better-ranked companies in the steel space include Olympic Steel Inc. (ZEUS- Snapshot Report), Evraz Highveld Steel & Vanadium Ltd. (HGVLY - Snapshot Report) and POSCO (PKX - Analyst Report). While Olympic Steel sports a Zacks Rank #1 (Strong Buy), both Evraz Highveld Steel & Vanadium and POSCO carry a Zacks Rank #2 (Buy).