Firm prices in a traditionally slow quarter and higher capacity utilisation helped stressed steel assets, acquired under the insolvency resolution law, exceed the Street estimates on their performance in the second quarter. Lower interest burden, with lenders to these assets writing off parts of the debt as haircut, helped buttress bottom-lines as well.
While losses narrowed for both ElectrosteelNSE 4.45 % Steels and Monnet Ispat and Energy, Bhushan SteelNSE -0.71 % continued its streak in black that it began with the first quarter after incurring losses for 18 straight quarters.
“Three factors have come to play in improving the financial performance of these erstwhile stressed steel assets – prices have been buoyant, capacity utilisation going up because the new managements inject their expertise and capital…” Anjani Agarwal, global industry leader for steel at EY, told ET. “…also the interest burden is going to be lighter due to debt reduction and stronger acquirers refinancing with lower cost of debt and equity," Agarwal said.
Of the three steel companies that have already been resolved under the insolvency law, Monnet Ispat and Energy lenders took the largest (75 per cent ) haircut on their debt of over Rs 11,000 crore when the sole bidding consortium of Aion Capital and JSW Steel acquired it in September. Finance costs of the company fell by 94 per cent to Rs 16 crore in the second quarter.
Similarly, for Bhushan Steel that was acquired by Tata SteelNSE -0.29 % for Rs 35,200 crore in May with the least haircut until now (37 per cent ), there has been an almost commensurate reduction in its finance costs for the quarter of 40 per cent at Rs 900 crore.
Electrosteel Steels - Vedanta’s vehicle to enter steelmaking- saw finance costs decrease 69 per cent to Rs 89 crore. VedantaNSE -6.77 % had taken a haircut of 55 per cent on the asset.
The second quarter is considered to be slow for infrastructure companies as the monsoon reduces construction activity. But this year has been an exception as the historic currency erosion drove input costs, such as imported coking coal, significantly higher, forcing steelmakers to raise prices.
