Turnaround will take 24 months, says group’s chief financial officer.
It was supposed to be a master stroke for JSW Steel, something to make it the largest steel maker in India. However, a year after the acquisition of Ispat Industries, the script has played out differently.
Chairman and managing director Sajjan Jindal said last year that Ispat would be turned around within a year of its acquisition. He had given three reasons — lower interest rates for debt refinance, taking up Ispat’s stalled projects and synergy between the two companies.
However, Ispat is still miles away from being profitable. Now an associate of JSW, which holds a little less than 50 per cent stake, Ispat has delayed its quarterly results’ announcement for a consecutive quarter. For the quarter ended June 30, Ispat, now called JSW Ispat Steel Ltd, reported a net loss of Rs 1,135 crore against one of Rs 69 crore in the same period last year.
The auditors’ report expressed inability to give an opinion on reorganisation of the net deferred tax asset of Rs 1,309 crore for the year ended June 30 and of Rs 964 crore for the year before.
The first-quarter results were scheduled on October 19 but the company, on October 15, said the board meeting to approve these had been postponed till further notice. The company said the meeting was being deferred because of the delay in completion of the audit exercise.
| VITAL NUMBERS (in Rs cr) | ||
| Ispat | Revenue | Net profit |
| 2010-11 | 8,531 | -1,806 |
| March ’11 | 2,722 | 70.2 |
| June ’11 | 2,619 | -1,135 |
| Source: Company | ||
Assurance, issues
Seshagiri Rao, joint managing director and group chief financial officer for JSW Steel, said: “The turnaround will take 24 months. We are kicking off the new projects in Ispat. Once they are completed, Ispat will be a very good and profitable company. It will take 24 months for the projects to get commissioned.”
Apart from a power plant, a pellet plant and a coke oven battery, JSW has planned to increase Ispat’s steel making capacity to 4.2 million tonnes annually, from the current 3.3 mt. It hadn’t given a schedule. However, Rao said all the projects it has undertaken would be completed, like the 2.3-mt cold-roll mill in Bellary (Karnataka).
He blamed external issues such as interest rate rises, gas unavailability, etc, for the delay in Ispat’s turnaround.
JSW had successfully managed to refinance the entire debt of Ispat and has asked for permission to come out of the corporate debt restructuring (CDR) programme. However, a major pillar of Ispat’s turnaround, the reduction in interest rates, hasn’t happened.
| Promised vs Delivered |
| Reduction in interest rates for the debt recast Interest rates roughly at the same rates as before |
| Power from JSW’s Ratnagiri plant at cheaper rates The deal hasn’t gone through as yet |
| Pellet from JSW’s plant in Vijayanagar Iron ore shortage in Bellary has delayed the plan |
| Original Ispat turnaround timeline was 12 months Now, it will take 24 months for turnaround |
| Betting on expansion plans, like coke oven, power plant Yet to kick off |
The company has managed to refinance the entire debt but failed to achieve the three-four per cent reduction in interest rates it had hoped for during the acquisition.
Said Rao: “The strategy (of reducing interest rates) did not work as interest rates in the market went up. These have gone up 13 times since the time we acquired Ispat.”
Steel production is also nowhere near its earlier peak, due to the drop in gas supply from Reliance’s KG-D6 basin. Jayant Acharya, director (sales and marketing), JSW Steel, said he hoped Ispat might clock close to 90 per cent of capacity in the coming month.
Ahead
A 110 Mw power plant for Ispat is also on the drawing board. During the acquisition, JSW Steel had said it’d supply power to Ispat’s plant from its Ratnagiri (Maharashtra) unit at a much cheaper rate than the Rs 6 per unit Ispat was paying.
However, state rules and long-term contracts with the government did not allow JSW Energy, part of the JSW Group, to supply electricity to Ispat’s Dolvi plant. To tide over this, Ispat has bought 26 per cent stake in the 300 Mw power plant of JSW Energy in Ratnagiri district.
JSW’s plan to supply pellets to feed the blast furnace is also a non-starter because of the shortage of iron ore in Bellary. JSW had planned to replace Ispat’s imported pellets with its own once the former’s pellet plant began operations in April.
The Supreme Court’s ban on iron ore mining in Bellary forced JSW to cut steel production in the state. The absence of ore, a prime ingredient in making steel, forced JSW to cut output to as low as 30 per cent and shut smaller blast furnaces.
The company is currently at around 60 per cent capacity and is buying ore from e-auction, under the Court’s strict guidelines.
In sum, the quick results that JSW had expected from Ispat seem out of the question. However, the promoters hope in the long run, Ispat, with its 150-mt iron ore and 70-mt coking coal mine, will still prove a bet worth the risk.
