 "Firdose Vandrewala")
Two days after CARE Ratings downgraded Essar Steel to "default" grade citing delay in servicing of debt obligation, the company's Executive Vice Chairman Firdose Vandrewala explains the company’s roadmap ahead and its debt reduction strategy. Excerpts from an interview with Aditi Divekar.
How do you explain the operating losses on the consolidated basis for FY13?
Essar Steel has a complete turnaround strategy in place which includes completion of projects, scaling up capacity and increased EBIDTA as well as addressing the balance sheet. Essar Steel will be the partner of choice in view of its product quality and customer centricity. The operating losses are mainly on account of delay in completion of projects due to regulatory reasons. However, these issues are now largely addressed.
Our first focus now is on completion of all the pending projects. The steps taken will ensure the following major projects are completed as per the plan.
Completion of the expansion of the 12 mln tonne Odisha complex, this includes the second phase of pellet plant with a capacity 6 mln tonne per annum Coke Oven Plant at Hazira
What is going to be your debt reduction strategy?
The perception around the company’s high debt is unsubstantiated. While Essar Steels debt per tonne is about Rs 31,000, the new capacities which are under implementation are in the range of Rs 55,000-60,000 tonne. The repayment of debt will happen over the next few years. Essar Steel has high end value added investments of 1.5 MT of plates and 0.6 MT of pipes which are included in the above calculations.
How much do you plan to raise by selling non-crore assets and by when?
Essar Steel has received shareholders’ approval to raise Rs 2,100 through asset sale with dedicated Service Agreement. As planned, we will complete this by the end of current fiscal.
After the downgrade it is going to be difficult to raise money as cost of credit may go up for you. How do you plan to tackle the issue?
The Company’s financial plan is on track. The downgrade will not in any way impact our plans. The rating is based on the balance sheet of last year. However, company has taken many steps to strengthen its operations. This includes completion of the projects, EBIDTA improvement plan and multi-pronged financial plan.
As per analysts, your peers though have high debt to service, are in a comfortable position in terms of their operating profits. What has put Essar Steel in this situation?
We are yet to see the benefits of the investments made in our expansion. Once we get the full benefits, our profitability will grow three fold which will make us more than comfortable to meet our debt obligations.
