Bidding interest in Bhushan Steel is high as bidders get state of the art plants at cheap price while banks take a haircut on debt.
RBI has recommended insolvency against 12 stressed companies under IBC (insolvency and bankruptcy code) and Bhushan Steel is one of them. Bhushan Steel case is now being heard in NCLT while there are many showing buying interests for Bhushan Steel. JSW Steel, Arcelor Mittal are among prospective buyer for debt-laden Bhushan Steel.
So, what exactly makes Bhushan Steel an attractive bet for buyers?
Bhushan Steel has a 5.50 million tonne plant with operating profitability close to 20% as of FY-17, which is quite healthy. Bhushan Steel also has an iron ore mine in Sundergarh district in Odisha, iron ore mine has a reserve of 92 million tonnes. Bhushan Steel is a long-term supplier to major renowned white goods manufacturers & automobiles manufacturers such as Maruti Suzuki, Tata Motors, Honda Cars, Mahindra & Mahindra, Ashok Leyland are well-known buyers in the Automobile sector. LG, Samsung, Videocon, Haier are well-known names in the consumer durables sector. Bhushan Steel also has a significant stake in Odisha sponge iron & steel, which also has high-grade iron ore mines, reserves of mines are 122 million tonnes and it has life of around 15 years. However, the shareholding of Odisha sponge is a matter of dispute between Monet Ispat and Bhushan and the board of Odisha sponge.
Fundamental– FY-17 numbers show that Bhushan steel EBITDA is Rs. 29,931.88 Million with EBITDA margin of 19.91%, comparing it with JSW Steel, which has EBITDA of Rs. 1,23,263.5 Million with EBITDA margin of 20.36%, only slightly higher than Bhushan steel despite the fact that Bhushan steel is running at very low capacity utilization when compared with JSW Steel.
Expansion Cost– If a company want to expand its steel plant capacity, they will require approximately Rs. 40 Billion for 1 million tonne expansions. Bhushan steel has a 5.50 million tonne plant, which is state of the art. If any company wants to go in for expansion of 5.50 million tonnes they will require approximately Rs. 220 billion and if it is greenfield than 1 Million tonne plant will cost Rs 60 Billion and for 5.50 million tonnes, cost will be around Rs. 330 billion.
Bhushan steel has a debt of around of Rs. 462 billion. If banks are ready to take a haircut of around Rs. 130 billion, then it’s a complete win-win situation for the prospective buyer as they will get a fully operational plant at a reasonable price.