Wednesday, August 13, 2014

Bhushan Steel and the friendly bankers

Bhushan Steels is in the news for not so nice reasons. Here is a summary of their quarterly numbers

http://www.moneycontrol.com/financials/bhushansteel/results/quarterly-results/BS14#BS14

Is it not amazing that for a company with a annual turnover of around 10,000 crs, the bankers think it prudent to give loans of the size of Rs.40,000 crores? The company's reported networth is under Rs.10,000 crores. This kind of leverage is normal only for a well managed non banking finance company or a bank. Our PSU Bankers seem to be very generous in lending this magnitude of money! And assuming that the total loans are around Rs.40,000 crores ( the March 2013) balance sheet shows total loans of around Rs.35,000 crores), the quarterly interest numbers are very low, showing that the company is capitalising its interest costs and that the cash losses are far higher than what the last few quarters have shown.
The company has been in the news for various accidents at its main 3 million-tonne-per-year steel plant in Odisha. At least 72 people have died in accidents since the commissioning of the plant in August 2006, according to a state regulator. (http://in.reuters.com/article/2014/08/12/india-bhushan-steel-idINKBN0GC0ZL20140812
The company has been a frequent diluter of its equity through private placements (presumably) and whatever it is planning to build or is under construction is unlikely to generate enough to service the debt.
Below is from the directors' report of FY 2012-13

 Your company is under implementation of 0.35 MTPA capacity Colled
 Rolling cum Electrical Steel (CRNGO) Complex at estimated project cost
 of Rs.1563 crores at Meramandali, Orissa.
 
 In addition to the above, the company shall also be completing the Coke
 oven plant (1.3 MTPA), Coal Washery (2.5 MTPA) and 2 DRI Kilns
 (aggregate capacity of 0.34 MTPA) and 197 MW Power Plant at the
 existing site of Integrated steel plant at Orissa in the current
 financial year i.e. 2013-14.
 
 In order to maintain its leadership position in downstream segment of
 steel industry and to maximize the margins, the company is setting up
 the downstream capacity of 1.8 MTPA, where the company shall come up
 with PLTCM of 1.8 MTPA and CAL of 1 MTPA with the estimated capex of
 Rs.5995 crores at Meramandali, Orissa to fully utilize its additional
 HR capacity. With this the company''s total downstream production
 capacity shall be increased to about 4 MTPA by FY 2017.

The arithmetic of spending close to 30,000 crores seems a bit fuzzy to me, though I am sure that the able PSU bank credit committees and the Boards of their banks would have done a thorough evaluation and that they know everything. 

One more extract from the annual report: 
The Working Capital facilities for Sahibabad, Khopoli and Orissa Plants have been appraised by PNB, the lead Bank, for Rs.11390 crore (Fund  Based limit of Rs.5390 crore and Non Fund Based limit of Rs.6000 crore) for the Financial year 2013-14. 
Clearly, these total up to a full year's sales numbers!! Some evaluation this!!

CREDIT RATING 
I have nothing to say on this, except that the credit ratings are by CARE, a rating agency that was promoted by IDBI. I just note that neither CRISIL nor ICRA have any outstanding credit ratings on this company and to me that says a lot. With half a dozen 'recognised' credit agencies, the bankers happily accept any two rating agency tags. And if neither CRISIL nor ICRA is one of them, I ignore the ratings. 







1 comment:

lord gane said...

The articles are not well organised. The text is most of the times cut in the end!!