Energy sector woes dog Jyoti Structures

Debt burden of the firm had mounted to Rs 2,916 crore in March 2015. Net sales stood at Rs 3,111 crore. The sixth of a 10-part series on corporate debt looks at the company's prospects

The power, energy and mining sectors seem to have got the short end of the new strategic debt restructuring (SDR) stick that allows lenders to take control of a defaulting company and find new investors to revive the ailing firm.

Joining this list in August 2015 was Mumbai-based energy, power and construction company Jyoti Structures, one of the earliest companies to be brought under the programme.

Lead promoters K R Thakur and P K Thakur - who are also directors of the firm - and others who are part of the promoter group had to have debt converted to equity, which meant their shareholding would fall to 23.78 per cent. Of the remaining 76.21 per cent, comprising institutions held 23.57 per cent, while non-institutions held 52.64 per cent.

At the time, bankers decided to convert Rs 307.6 crore of loans into shares at Rs 26.90 a share at a premium to the market prices. Under SDR norms, such equity cannot be reflected on the bank's balance sheet as mark-to-market gains.

The stock, which had fallen to a two-year low of Rs 10.8 in September 2015, is now trading at Rs 15.39 on the Bombay Stock Exchange. The board is scheduled to meet next week to review the post-SDR status.

"Its promoters have been cooperating and agreed to implement suggestions made by us," said a banker who is involved in the SDR process. "It's important for a turnaround that there should be an improvement in the business environment and growth climate plus roll-out of a corrective action plan by the company."

Emails sent to the company remained unanswered.

The reasons for Jyoti Structures' travails are much the same that bedevil the rest of the energy sector: a lack of raw material linkages; stalled projects; lack of approvals and clearances; and a creeping slowdown in demand. Officials associated with the SDR told Business Standard that the company's liquidity problems, too, stem from an ongoing struggle to procure raw material for manufacturing power transmission lines and towers. As a result, its plants are running well below capacity, resulting in missed delivery schedules.

In the quarter ended September 2015, Jyoti Structures reported a loss of Rs 157.24 crore, against Rs 151.97 crore in the preceding quarter and Rs 69 crore in the year-ago quarter. The company's revenues fell a steep 37.60 per cent to Rs 394 crore in the quarter ended September 2015 from Rs 631 crore during the quarter ended September 2014.

Long-term borrowings, on a standalone basis, at the end of September 2015 were Rs 1,023.9 crore, against Rs 1301.4 crore in Q2-FY15.

But the increase in its liabilities gives a more accurate snapshot of the financial distress that pushed the firm into the SDR scheme. For the financial year ended March 2015, its consolidated debt stood at Rs 2,355.97 crore, almost double the Rs 1,266.12 crore debt in 2014.

While SDR provided partial relief, the company's operational performance could not support its growing debt levels. Just eight months into FY16, at the end of November 2015, Jyoti Structures' debt had risen to Rs 5,291.32 crore, an increase of more than 100 per cent from March 2015.

The first warning signs of deterioration came in September 2014 when credit rating agency CARE suspended the company's ratings assigned to bank facilities and non-convertible debentures due to deterioration in the firm's liquidity profile, following severe decline in profitability.

In a recent report, Religare said Jyoti Structures' current order backlog stands at Rs 4,610 crore; assuming an average execution period of three-and-a-half years, it would generate revenue of Rs 1,300 crore annually.

However, this would translate into earnings before, interest, tax, depreciation and amortisation, or EBITDA, margins of a mere seven per cent, far from enough for a significant turnaround.

Analysts said there could be more bad news in store. Jyoti Structures had issued corporate guarantees of Rs 860 crore on behalf of its subsidiaries; if even 60 per cent of those guarantees are invoked, it would only add to the company's already bloated debt.