Digging Deep

With the worst performance among sectors in BT500, most mining and metal companies continue to struggle.

- Nevin John

ON OCTOBER 6, Naveen Jindal-run Jindal Steel and Power (JSPL) said it had defaulted on payment of interest on non-convertible debentures (NCD) because of a cash flow crunch. It is a complete contrast to the heydays of the steel maker at the turn of this decade. The share price of the company was at its peak at above ₹700 and its market value was higher than established biggies such as Tata Steel, SAIL and JSW Steel. The company had a consolidated profit of ₹3,800 crore on revenue of nearly ₹13,000 crore in 2010/11.

However, in the past one year, the market value of JSPL has fallen 43 per cent and the share price stood at around ₹75 at the end of September 2016. In the previous financial year, the steel maker made a consolidated loss of around ₹2,000 crore on revenue of around ₹19,000 crore. The net debt stood at ₹46,000 crore.

JSPL’S fall captures the overall struggles of the steel industry. Like most of the players in the sector, it too has faced challenges in addressing its debt situation in the recent past due to cash flow mismatches. “However, if you look at our record, we were running at peak capacities both in steel and power businesses. The market demand at that time made us increase our capacities by 200- 300 per cent, which required huge amounts of debt to finance the mega projects,” explains Ravi Uppal, Managing Director and Group CEO, JSPL. “By the time our capacity addition projects were complete and new capacities were ready to be commissioned, there was a drastic change in the demand-supply scenario. This did affect our EBITDA (earnings before interest, tax, depreciation and amortisation), cash flows and our ability to repay debt in the short term.” In addition, the company had been embroiled in the mining scam, adversely affecting the share price.