Bhushan Steel surged 20 per cent on Friday on hopes that lenders to the company have agreed to restructure its debt. The Bombay Stock Exchange has sought a clarification from the company regarding this development.
The stock of deep-in-debt Bhushan Steel has been on a downslide since last August, losing close to 85 per cent till date. This was after the company got embroiled in the Syndicate Bank bribery case.
Debt restructuring, if agreed to by the company’s lenders would, therefore, bring big relief. As of March 2015, Bhushan Steel had a debt-to-equity ratio of 4.9 times, up from 2.6 times three years ago.
The burden of history
Rising consistently over almost a decade, the debt on the company’s books ballooned to ₹38,529 crore by March 2015, two-and-a-half times that in March 2011. Bhushan Steel’s problems began in 2010-11, when its debt repayment obligation more than trebled to ₹1,118 crore. This was probably because a part of the loans taken for capacity expansion became due. The company’s operating cash flows of ₹994 crore fell short of its debt-repayment obligations. The situation worsened in 2013-14, with more loans becoming due.
Debt repayments apart, Bhushan Steel’s interest burden too has risen sharply, even as its profits shrank. The company’s finance cost multiplied five-and-a-half times to ₹2,494 crore between 2010-11 and 2014-15. On the other hand, from reporting profits at the net level, the company turned loss-making last year. It posted a net loss of ₹1,257 crore in 2014-15, as against a net profit of ₹1,007 crore in 2010-11.
In the past, the company has enjoyed high margins on account of its value-added steel products portfolio. But, it lost this advantage a few years ago as it integrated backwards by entering into primary steel-making (hot-rolled coils and billets) even as its specialised steel capacity remained largely unchanged. Subdued steel demand and cheap imports into the country too have hardly helped.