Shortage of funds and insolvency proceedings has lead to decline in Essar steel production this quarter and this will affect the profitability of the company.
Essar Steel, one of the leading steel manufacturers of India, has announced its Q2FY18 results.The steel maker’s flat steel production has been recorded at 1.33 MnT in Q2 FY18 compared to 1.57 MnT in Q1 FY18. Thus on Q-o-Q basis, company’s flat products output has witness the decline of 15%.The results showed the decline since the company was referred to the National Company Law Tribunal (NCLT).
As per sources company’s EBITDA registered fall of 36% on quarterly basis to INR 475 crores in Q2FY18 against INR 750 crores in previous quarter.Thus ,rising input cost and falling production volumes has demolished the profitability of the company.
However the company is is already paying INR 250 crores on monthly basis to lenders for loan servicing which has stopped after the Insolvency Resolution Professional (IRP) has taken the control over the company.
Meanwhile at the time of the appointment of the resolution professional in July 2017, the lenders had insisted that there should be no impact on the company’s performance. The aim was to improve performance of the company as a ‘going concern’ and preserve its value, the sources said.
Company officials also mentioned that gas prices have increased by USD 10.16/ mmbtu (one million British Thermal Units) in November from USD 7.4/ mmbtu in June this year.Rise in gas prices impacts iron ore costing as the 68%of Essar Steel’s iron making is through the gas-based route only.Thus gas price plays a critical role in the profitability of the company.
Five Major Steel Makers Showed Interest in Essar Steel – Reports
Arcelor Mittal, Sumitomo Corporation, Vedanta Resources Plc, Tata Steel Ltd. and Steel Authority of India had expressed their keen interest in acquiring Essar Steel and have submitted EoI for resolution plan.The final bidders are expected to submit a plan, by mid-December. The committee of creditors would then approve the proposal best suited to their valuations, and send it to the National Company Law Tribunal for approval. The entire process has to be completed within 270 days of the case being admitted for insolvency proceedings.
~Sourced
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