Will Pipavav Defence get lease of life under new promoter?

In its two-decade journey, Pipavav Defence has been heading the list in almost all areas of defence shipbuilding

Anil Ambani-controlled Reliance Infrastructure’s picking up Pipavav Defence & Offshore Engineering Company’s founder Nikhil Gandhi’s promoter stake comes at a time when the Centre is pushing for the local production of defence equipment.

Pipavav, India’s largest shipbuilding and heavy industry company, has been bidding for defence projects cleared by the government. India imports nearly 70 per cent of its military hardware.

The government cleared defence projects worth Rs 80,000 crore recently. Pipavav Defence had bid for Rs 30,000 crore of these.

Over two years, the firm’s sales have stagnated and its debt-equity ratio has been rising. Though the operating profit has been climbing, the interest outgo has also grown considerably.

Nearly 70 per cent of the operating profit of two years has gone into paying interest.

“A new investor would have to infuse capital and resources in the company whose debt is being restructured. The existing promoters were finding it difficult to pump in money (including capital) as part of a loan recast,” an executive with a public-sector bank told the Business Standard.

“Pipavav Defence and Offshore Engineering's debt is Rs 7,000 crore. It has to recast it before the end of March. Else, there is a risk of a non-performing asset,” said the executive.

“The bad loan treatment would mean banks would have to make provision of at least Rs 1,000 crore for just one account in the fourth quarter of FY15,” he said.

He added: “The debt level of Reliance Infrastructure, which has bought a stake in Pipavav, would be crucial issue for lenders.”