The Mittals-controlled Ispat Industries has failed to live up to its projections made in 1997, while mopping up Rs 800 crore through a convertible rights issue.
The company's net profit, which was projected to grow by a whopping 1,016 per cent at the end of the period (from 1997-98 to 2000-01), has actually gone down by 132 per cent. Consequently, a 25 per cent steady dividend payout, as projected, was not met. In fact, the company has not paid any dividend in the last four years.
A K Sureka, director (finance) Ispat Industries attributed the recession in the steel industry and delay in the company's hot rolled coil (HRC) project as the main reasons behind the dismal performance. "The steel market has been stagnating for the last three years and our project has also been delayed" he said.
However, the company has charted out a major financial restructuring programme to make the project viable. "Apart from the financial restructuring, we will also endeavour to reduce operating cost," said Sureka.
Ispat's return on the investment made for the convertible debenture issue, is also predictably unattractive. An investment at Rs 15, the minimum subscription price for a debenture which was converted to equity after 18 months, would fetch a shareholder only 60-80 paisa.
The premium offer was made in the ratio of one convertible debenture for every two equity shares.
The debentures were converted in equity shares after 18 months from the date of allotment in a price between Rs 15 and Rs 30 a piece.
The projections were made in the prospectus of the Rs 800 crore convertible rights issue which was launched in May, 1997, to part finance the HRC project of Rs 4,570 crore. The plan has also been reassessed by institutions at Rs 7,206 crore due to time overrun and cost escalation.
Topline also did not live up to expectations. It was projected that net sales would grow by 142 per cent-from Rs 1,893 crore to Rs 4,592 crore. In reality, gross revenues grew by only 55 per cent over the past four years.
Surprisingly, the company's projections made in May 1997 fell short of actual results even for the financial year ending March 1998.
It was projected in May 1997 that seven months down the line ( at the end of March 1998) the company would be able to generate a net sales of Rs 1893 crore, PBT of Rs 100 crore, PAT of Rs 87 crore and would pay out dividend of 25 per cent. However, eventually the company ended up with a gross sales of Rs 1453 crore, PBT of 60 crore, PAT of Rs 55 crore and did not pay dividend.
