Essar Steel to clock its best-ever performance as bidding picks up pace

Essar Steel, one of the Reserve Bank of India’s (RBI’s) first ‘Big 12’ of non-performing assets to be auctioned under the bankruptcy law, is likely to clock its best-ever performance this financial year.

As the bidding process picked up pace since the process was set rolling last August, so did the company’s performance. 

At the time of the first round of bidding, those interested had access to the January numbers, when Essar recorded an Ebitda (operatign earnings) of Rs 1.9 billion, sales of Rs 23.8 bn and production of 540,000 tonnes. 

From there, it steadily moved to an Ebitda of Rs 3 billion, sales of Rs 25 billion and production of 550,000 tonnes in April. Sources say production in May was even higher at 580,000 tonnes.

When the insolvency process started for Essar last August, the Ebitda was Rs 1.8 billion, sales at Rs 18.15 bn and production at 454,000 tonnes. Satish Kumar Gupta, resolution professional for Essar Steel, declined to comment. 

Sources said for 2017-18 (ending March 31), production crossed six million tonnes of crude steel and deliveries were 5.8 mt, the best ever. In 2016-17, production was 5.6 mt and revenue was Rs 220 billion.

Jayanta Roy, senior vice-president at ratings agency ICRA, said: “Domestic steel prices have hardened further in the first two months of FY19 (April and May) over March. 

Therefore, we believe the margins of steel firms, including Essar Steel, are likely to improve in the current quarter.”

In the past two months, prices of hot rolled coil, the benchmark for flat steel products, have risen; they have been on an uptrend for a while. They were Rs 40,000 a tonne in end-December and reached Rs 45,550 a tonne by end-May. 

 

The improvement in Essar’s performance and market buoyancy could have an impact on the bidding. Already, bid values had gone up in the second round. Numetal has disclosed it bid Rs 190 billion in the first round and raised this to Rs 370 billion in the second one. 

The second offers were yet to be opened. In the first round, ArcelorMittal was the higher bidder. 

The National Company Law Appellate Tribunal (NCLAT) is currently to decide which round of bidding to go with. Numetal has appealed that the second round be considered; ArcelorMittal is for the first one. 

The latter has already deposited Rs 70 billion in an escrow account for payment towards defaulting firms Uttam Galva Steels and KSS Petron — subject to ArcelorMittal being declared the successful bidder for Essar. In the first round, only ArcelorMittal and Numetal had bid. 

In the second, Vedanta also did so and Numetal was joined by JSW Steel as an investor in a step-down subsidiary.