Arjas Steel Private Limited’s recent acquisition of Punjab-based Modern Steels Ltd(MSL) will be credit neutral for the rated entity, according to India Ratings and Research (Ind-Ra).

ASPL incorporated a wholly-owned subsidiary, Arjas Modern Steel Pvt Ltd (AMSPL), to enter into a definitive slump sale agreement with MSL. The management expects the acquisition to be completed by March 15, 2021.

MSL, incorporated in 1974, operates a 150,000 tonne manufacturing facility at Mandi Gobindgarh, in Punjab, for low-alloy and carbon-steel-rolled products. The company is listed on the BSE Limited and primarily caters to the auto industry. MSL’s accounts with lenders have become non-performing assets. However, its manufacturing facility is operational and has no technical issues. The existing dues of MSL’s financial creditors will be settled through the sale proceeds, and ASPL will not assume any existing borrowings of MSL. The key approvals awaited are from MSL’s financial creditors and the National Company Law Tribunal.

The acquisition purchase consideration, of ₹86 crore, is to be paid by ASPL via AMSPL upfront in cash. The management expects the total cost to reach around ₹125 crore over the next 12-18 months, including modernisation expenditure and working capital requirements.

After the addition of MSL’s capacity, APML’s consolidated manufacturing capacity will increase to 450,000 Tonnes. ASPL had a turnover of around ₹1,250 crore in FY20. The management expects the new plant, when fully operational, to add ₹6,00-800 crore per annum to the total turnover, taking ASPL’s consolidated turnover to around ₹2,000 crore by FY23. After the acquisition, ASPL will be able to supply steel products to MSL’s clients, such as Maruti Suzuki India and Hero MotoCorp in North India, thus, gaining access to new customers. ASPL can also service its own customers in northern India from MSL’s plant in Punjab, saving significantly on the freight costs.

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