Bhushan Steel chalks out plan to improve cash flows

26 June 2015

Neeraj Singhal-led Bhushan Steel said it will focus on capacity utilisation to ramp up operating profits besides selling non-core assets.

“Since there will be no pressure of debt repayment for the next four years, we plan to focus on raising the topline. We will focus on catering to large clients and OEMs (Original Equipment Manufacturer) of the auto segment as well as the white goods market,” Nitin Johari, chief financial officer told Business Standard.

“For this, the capacity utilisation will also be raised to over 90% from current 65-68%,” he added.

Early this month, a joint lenders’ forum (JLF) agreed to refinance Bhushan Steel's Rs 35,000 crore (as on March 31, 2014) debt under the 5/25 scheme for infrastructure projects. Under this scheme, banks can extend loan repayment periods up to 25 years, with an option of refinancing the loan every five years.

Though the New Delhi-headquartered company is looking to increase its topline, it has no intensions of altering its sales ratio of 80:20 for the domestic-export market. Within the domestic market too, where the debt-ridden company has captured 40% market share in the auto segment and 80% in the white goods sector, Bhushan Steel has no plans to make any extra efforts to grab additional share.

“Since we are mainly into value added products and deal in niche sections of auto and white goods, products are sold at a premium price. This should help us (the company) churn higher revenues,” explained Johari.

After witinessing diminishing bottomlines for three consecutive years, which was mainly due to increased interest outgo and stagnated revenue stream, Bhushan reported losses in the year ended March 31, 2015. The company reported losses all through the four quarters, taking the bottomline to a net loss of Rs 1,257-crore in the year gone by.

On the expenses front, there is little that Bhushan Steel can do without captive iron ore source. Hence, it's operating profits will be impacted by the price trend.

With a total capacity of 11 million tonne, the secondary steel producer has three manufacturing units-- Sahibabad unit in Uttar Pradesh, Khopoli unit in Maharashtra , and Meramandali unit in Odisha.

In terms of products, the company is mainly into value added ones such as galvanised coil and sheet, high tensile steel strapping and colour coated coils among others.

Though the company has a plan in place to improve its topline, given the subdued demand scenario in the domestic market amid increasing cheap Chinese imports, achieveing the set revenue targets could be difficult.

“The difficult phase for domestic steel industry is expected to continue for the next one-and-half to two years,” admitted Johari. “Whatever steps have been taken so far by the government to improve the investment climate, will take time to change into reality,” he added.

Some analysts voiced concerns over cheap Chinese imports. “Chinese imports are mainly flat steel products and these imports may not come down soon even if the (import) duty has been hiked. Due to this, the company's profitability will remain under pressure in coming quarters,” said an analyst with a local brokerage.

Mayuresh Joshi, vice president-institution of Angel Broking said, “It will take time and recovery is going to be painful for Bhushan Steel. Realisations could be lower since demand is weak.”

Some analysts also continue to see a downtrend in steel prices. “There is still some room for steel prices to fall further though prices have already fallen Rs 1,500-1,600 per tonne,” said Pritesh Jani, analyst with Religare Securities.

Meanwhile, Bhushan Steel continues to chalk out a plan to increase its cash flows via sale of non-core assets.

“In the year ended March, we sold non-core assets worth Rs 1,000 crore. In FY16, we are planning to sell non-core assets worth Rs 500 crore,” informed Johari refraining from revealing details regarding the assets it plans to sell.

While some heavily indebted companies have recently looked for strategic investors to bail themselves out of the tough business conditions, Bhushan Steel has ruled out this option for itself.

“Which investor would like to invest in the market like this? This is not the right time to get a strategic investor as the industry is not looking up at all. There is no plan to get an investor at present,” Johari said without stating whether the company would take a relook at its decision two years from now when perhaps the market would look better than the current scenario.

Bhushan Steel has been in news for quite from time now, for reasons other than its high debt. In August last year, Bhushan Steel vice chairman and managing director Neeraj Singal was arrested by the CBI in an alleged cash-for-loan scam involving the then Syndicate Bank chairman and managing director S K Jain, who was later suspended by the government.

Recently, the Odisha high court slapped a fine of Rs 14 lakh on two of Bhushan Steel officials for violating occupational safety and health norms failing which they would have had to undergo one-year imprisonment. In response to the court order, both the officials deposited Rs 7 lakh each.