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Cheap imports, coal mine cancellation hit Monnet Ispat

The original promoters will likely have to make way for new investors if the company is to get back on its feet and repay its high debt

The strategic restructuring scheme introduced by the Reserve Bank is set to change the management of that have failed to repay bank loans. In a 10-part series, Business Standard looks at what ails these companies and why. The second part explains how got caught in the debt trap

Debt-laden Monnet Ispat & Energy, which is treading the strategic debt restructuring (SDR) route, will eventually see new promoters as lenders to the company looking to put the producer in the recovery mode.

“I am not happy to give control of this company to someone else. It has taken me 20 years to bring Monnet to the size it is. But, what option do I have now?” said Sandeep Jajodia, founder and chairman of Monnet Ispat.

In November last year, lenders decided to take control after Monnet Ispat failed to service its liabilities. Its consolidated net debt stood at a massive Rs 12,000 crore as on March 31, 2015 with 21 per cent of the loans taken for its power business and the rest for steel.

The financial metrics of the company have deteriorated over the years. The firm’s debt-equity ratio has zoomed to 4.71 in 2014-15 from a healthy 1.25 in 2010-11. Monnet manufactures sponge iron and other steel products at Raipur and Raigarh in Chhattisgarh.

Things were not so bad for Monnet until October 2014, when the company was being rated ‘adequately safe’ by ratings agencies. However, with steel prices tumbling 45-50 per cent in the past one-and-a-half years, cheap imports eating into incremental domestic demand, and government policies changing gears, the company landed in the situation where it is now.

Cheap imports, coal mine cancellation hit Monnet Ispat
Monnet Ispat was allotted blocks in 1996. According to the government’s policy prevailing then, companies had to make investments within a certain time period else it would lose those assets. The company started mining coal in 2003. “The policy then was such that steel producers were encouraged to increase capacities. Monnet reacted to the friendly business environment and made heavy investments in power as well as steel segment, making the coal mine its captive source. We invested Rs 5,000 crore to build the steel plant,” said Jajodia.

Later, according to the Supreme Court's decision, all coal mines were de-allocated and companies not only starved for coal, but also did not know what to do with the investments made. The apex court directive resulted in Jajodia losing all the five coal mines, hitting the business significantly. In the annual report for 2014-15, Jajodia told his shareholders the loss of its coal mines hit the business significantly. The company also ended up paying a penalty of Rs 250 crore apart from taking operational hit.
 

 
Meanwhile, steel prices were trending downward, making business more difficult for Monnet Ispat which had already raised debt relying on the strong demand outlook.  

Owing to this, where on the one side Monnet found it difficult to pay its debt, also started getting cautious in lending as they were unable to see profitability in businesses. Reacting again to the grim business cycle, the banking system started finding ways to penalise entities that took them to report higher non-performing assets.

“The industry has failed to meet expectation as the steel cycle extended its downturn, taking the average profitability estimates made by companies for a complete toss. Based on certain assumptions, companies had taken debt and banks had lent. But, nothing has worked according to estimates,” said Giriraj Daga, portfolio manager at SKS Capital & Research.

Now both Monnet Ispat and the company’s lenders are looking to make their businesses come back on feet via the route. This, however, would compel both to lose out on something. While Monnet’s promoters might lose control of the company, lenders would have to settle down with a hair-cut.

“Earlier, banks were not ready with the idea of taking the hair-cut but slowly, we (banks) are realising that there is no much option,” said one of the lenders to Monnet Ispat. “In order to make the business viable, it is important that both the banks and the company take some hit.”  

Whether the new investor will be able to turn the tide for Monnet Ispat in the current environment is anybody’s guess.

“All that we can say is that we (lenders) are not going to be pessimistic,” said the lender cited above. “If things don’t pick up, there will be some correction in the industry. But, as lenders, we have to hand-hold for sometime till things look fine,” he said.

Monnet Ispat Financials

Consolidated figures (in Rs Crore)      
FY Total Debt Networth Net Sales PBIDT PAT
FY10 1722.80 1666.52 1532.17 498.29 261.91
FY11 3100.12 2143.17 1625.56 475.05 276.55
FY12 5754.22 2427.83 1988.73 541.01 261.23
FY13 8606.46 2642.97 2062.11 550.83 222.15
FY14 10736.82 2735.65 2302.08 467.03 37.04
FY15 12499.69 1850.47 3242.15 -92.27 -856.93
           
(Source Capitaline; Compiled by BS Research Bureau)        
     

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Business Standard
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Business Standard

Cheap imports, coal mine cancellation hit Monnet Ispat

The original promoters will likely have to make way for new investors if the company is to get back on its feet and repay its high debt

Aditi Divekar  |  Mumbai 



Sandeep Jajodia, founder and chairman, Monnet Ispat
Sandeep Jajodia, founder and chairman, Monnet Ispat

The strategic restructuring scheme introduced by the Reserve Bank is set to change the management of that have failed to repay bank loans. In a 10-part series, Business Standard looks at what ails these companies and why. The second part explains how got caught in the debt trap

Debt-laden Monnet Ispat & Energy, which is treading the strategic debt restructuring (SDR) route, will eventually see new promoters as lenders to the company looking to put the producer in the recovery mode.



“I am not happy to give control of this company to someone else. It has taken me 20 years to bring Monnet to the size it is. But, what option do I have now?” said Sandeep Jajodia, founder and chairman of Monnet Ispat.

In November last year, lenders decided to take control after Monnet Ispat failed to service its liabilities. Its consolidated net debt stood at a massive Rs 12,000 crore as on March 31, 2015 with 21 per cent of the loans taken for its power business and the rest for steel.

The financial metrics of the company have deteriorated over the years. The firm’s debt-equity ratio has zoomed to 4.71 in 2014-15 from a healthy 1.25 in 2010-11. Monnet manufactures sponge iron and other steel products at Raipur and Raigarh in Chhattisgarh.

Things were not so bad for Monnet until October 2014, when the company was being rated ‘adequately safe’ by ratings agencies. However, with steel prices tumbling 45-50 per cent in the past one-and-a-half years, cheap imports eating into incremental domestic demand, and government policies changing gears, the company landed in the situation where it is now.

Cheap imports, coal mine cancellation hit Monnet Ispat
Monnet Ispat was allotted blocks in 1996. According to the government’s policy prevailing then, companies had to make investments within a certain time period else it would lose those assets. The company started mining coal in 2003. “The policy then was such that steel producers were encouraged to increase capacities. Monnet reacted to the friendly business environment and made heavy investments in power as well as steel segment, making the coal mine its captive source. We invested Rs 5,000 crore to build the steel plant,” said Jajodia.

Later, according to the Supreme Court's decision, all coal mines were de-allocated and companies not only starved for coal, but also did not know what to do with the investments made. The apex court directive resulted in Jajodia losing all the five coal mines, hitting the business significantly. In the annual report for 2014-15, Jajodia told his shareholders the loss of its coal mines hit the business significantly. The company also ended up paying a penalty of Rs 250 crore apart from taking operational hit.
 

 
Meanwhile, steel prices were trending downward, making business more difficult for Monnet Ispat which had already raised debt relying on the strong demand outlook.  

Owing to this, where on the one side Monnet found it difficult to pay its debt, also started getting cautious in lending as they were unable to see profitability in businesses. Reacting again to the grim business cycle, the banking system started finding ways to penalise entities that took them to report higher non-performing assets.

“The industry has failed to meet expectation as the steel cycle extended its downturn, taking the average profitability estimates made by companies for a complete toss. Based on certain assumptions, companies had taken debt and banks had lent. But, nothing has worked according to estimates,” said Giriraj Daga, portfolio manager at SKS Capital & Research.

Now both Monnet Ispat and the company’s lenders are looking to make their businesses come back on feet via the route. This, however, would compel both to lose out on something. While Monnet’s promoters might lose control of the company, lenders would have to settle down with a hair-cut.

“Earlier, banks were not ready with the idea of taking the hair-cut but slowly, we (banks) are realising that there is no much option,” said one of the lenders to Monnet Ispat. “In order to make the business viable, it is important that both the banks and the company take some hit.”  

Whether the new investor will be able to turn the tide for Monnet Ispat in the current environment is anybody’s guess.

“All that we can say is that we (lenders) are not going to be pessimistic,” said the lender cited above. “If things don’t pick up, there will be some correction in the industry. But, as lenders, we have to hand-hold for sometime till things look fine,” he said.

Monnet Ispat Financials

Consolidated figures (in Rs Crore)      
FY Total Debt Networth Net Sales PBIDT PAT
FY10 1722.80 1666.52 1532.17 498.29 261.91
FY11 3100.12 2143.17 1625.56 475.05 276.55
FY12 5754.22 2427.83 1988.73 541.01 261.23
FY13 8606.46 2642.97 2062.11 550.83 222.15
FY14 10736.82 2735.65 2302.08 467.03 37.04
FY15 12499.69 1850.47 3242.15 -92.27 -856.93
           
(Source Capitaline; Compiled by BS Research Bureau)        
     

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Cheap imports, coal mine cancellation hit Monnet Ispat

The original promoters will likely have to make way for new investors if the company is to get back on its feet and repay its high debt

The original promoters will likely have to make way for new investors if the company is to get back on its feet and repay its high debt The strategic restructuring scheme introduced by the Reserve Bank is set to change the management of that have failed to repay bank loans. In a 10-part series, Business Standard looks at what ails these companies and why. The second part explains how got caught in the debt trap

Debt-laden Monnet Ispat & Energy, which is treading the strategic debt restructuring (SDR) route, will eventually see new promoters as lenders to the company looking to put the producer in the recovery mode.

“I am not happy to give control of this company to someone else. It has taken me 20 years to bring Monnet to the size it is. But, what option do I have now?” said Sandeep Jajodia, founder and chairman of Monnet Ispat.

In November last year, lenders decided to take control after Monnet Ispat failed to service its liabilities. Its consolidated net debt stood at a massive Rs 12,000 crore as on March 31, 2015 with 21 per cent of the loans taken for its power business and the rest for steel.

The financial metrics of the company have deteriorated over the years. The firm’s debt-equity ratio has zoomed to 4.71 in 2014-15 from a healthy 1.25 in 2010-11. Monnet manufactures sponge iron and other steel products at Raipur and Raigarh in Chhattisgarh.

Things were not so bad for Monnet until October 2014, when the company was being rated ‘adequately safe’ by ratings agencies. However, with steel prices tumbling 45-50 per cent in the past one-and-a-half years, cheap imports eating into incremental domestic demand, and government policies changing gears, the company landed in the situation where it is now.

Cheap imports, coal mine cancellation hit Monnet Ispat
Monnet Ispat was allotted blocks in 1996. According to the government’s policy prevailing then, companies had to make investments within a certain time period else it would lose those assets. The company started mining coal in 2003. “The policy then was such that steel producers were encouraged to increase capacities. Monnet reacted to the friendly business environment and made heavy investments in power as well as steel segment, making the coal mine its captive source. We invested Rs 5,000 crore to build the steel plant,” said Jajodia.

Later, according to the Supreme Court's decision, all coal mines were de-allocated and companies not only starved for coal, but also did not know what to do with the investments made. The apex court directive resulted in Jajodia losing all the five coal mines, hitting the business significantly. In the annual report for 2014-15, Jajodia told his shareholders the loss of its coal mines hit the business significantly. The company also ended up paying a penalty of Rs 250 crore apart from taking operational hit.
 

 
Meanwhile, steel prices were trending downward, making business more difficult for Monnet Ispat which had already raised debt relying on the strong demand outlook.  

Owing to this, where on the one side Monnet found it difficult to pay its debt, also started getting cautious in lending as they were unable to see profitability in businesses. Reacting again to the grim business cycle, the banking system started finding ways to penalise entities that took them to report higher non-performing assets.

“The industry has failed to meet expectation as the steel cycle extended its downturn, taking the average profitability estimates made by companies for a complete toss. Based on certain assumptions, companies had taken debt and banks had lent. But, nothing has worked according to estimates,” said Giriraj Daga, portfolio manager at SKS Capital & Research.

Now both Monnet Ispat and the company’s lenders are looking to make their businesses come back on feet via the route. This, however, would compel both to lose out on something. While Monnet’s promoters might lose control of the company, lenders would have to settle down with a hair-cut.

“Earlier, banks were not ready with the idea of taking the hair-cut but slowly, we (banks) are realising that there is no much option,” said one of the lenders to Monnet Ispat. “In order to make the business viable, it is important that both the banks and the company take some hit.”  

Whether the new investor will be able to turn the tide for Monnet Ispat in the current environment is anybody’s guess.

“All that we can say is that we (lenders) are not going to be pessimistic,” said the lender cited above. “If things don’t pick up, there will be some correction in the industry. But, as lenders, we have to hand-hold for sometime till things look fine,” he said.

Monnet Ispat Financials

Consolidated figures (in Rs Crore)      
FY Total Debt Networth Net Sales PBIDT PAT
FY10 1722.80 1666.52 1532.17 498.29 261.91
FY11 3100.12 2143.17 1625.56 475.05 276.55
FY12 5754.22 2427.83 1988.73 541.01 261.23
FY13 8606.46 2642.97 2062.11 550.83 222.15
FY14 10736.82 2735.65 2302.08 467.03 37.04
FY15 12499.69 1850.47 3242.15 -92.27 -856.93
           
(Source Capitaline; Compiled by BS Research Bureau)        
     

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177 22
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