E & Y Values Essar Steel Intangibles At Rs 1400 Crore

Ernst & Young, the global professional services firm, has valued intangible assets of Essar Steel close to Rs 1,400 crore. The global consultants were roped in by the company to implement an enterprise value enhancement project and to do an operational review for cost-cutting.

Savio Gomes, director, Ernst & Young's management assurance services, said, "The intrinsic economic value of the intangible assets is little over Rs 1,400 crore. On an annualised basis, the operating profit of Essar Steel would go up by Rs 140 crore as compared to other steel players in the industry."

This would further mean that for Essar Steel the breakeven would be quicker and profitability would be much higher, says Gomes.

 

A relatively new concept for Indian steel companies, enterprise value enhancement is about identifying a process for enhancing the economic value of assets that are off the balance sheet and are considered intangible.

"It is for the first time that such a detailed study of intangible assets is being undertaken for a manufacturing-driven company such as Essar," said Savio Gomes.

An Essar Group spokesperson said, "Essar Steel has taken a major initiative with a clear focus to identify, nurture and enhance the competitive advantage of the company which includes assessment of human resources, its technical and innovative skills and other expertise. We have the lowest cost structure in the steel industry as is confirmed by Beddows & Hatch, the world renowned steel consultants. Internationally, we are benchmarking against cost competitive world class plants such as Posco of Korea."

The enterprise value enhancement project also includes recommendations for the development of an effective nurturing system for such real wealth creators. It is planned with the objective of ensuring that the real enterprise value and value creators are developed in a focused manner and that a value assessment report is presented to stakeholders at regular intervals.