After resolution, Monnet on path to recovery
The third of a four-part series on the Insolvency and Bankruptcy Code takes a look at how the steel firm’s turnaround plan was to be undertaken in phases
The only facility operational at Monnet Ispat & Energy at the time of acquisition by AION and JSW Steel was the direct reduced iron (DRI) plant.
A year later, the DRI plant is running at 100 per cent capacity, as is the pellet plant and the earnings before interest, depreciation, taxation and amortisation (EBIDTA) is positive amid a challenging environment.
Monnet, which owed banks
~11,000 crore, was one of the 12 nonperforming assets (NPAS) mandated for resolution under the Insolvency and Bankruptcy Code (IBC). A ~2,875 crore resolution plan, submitted jointly by AION and JSW Steel (minority partner), was approved by the National Company Law Tribunal (NCLT) towards the end of July.
However, dispute with the operational creditors dragged on till August when the appellate tribunal dismissed appeals by some creditors. Monnet has steel plants in Chhattisgarh with blast furnace and DRI facilities. Most of the units, however, were not operational when the company was acquired. The turnaround plan was to be undertaken in phases.
According to JSW’S annual report, postacquisition of management control, operations of the Raigarh Pellet plant was started in October 2018 and production was ramped up to around 90 per cent of the installed capacity.
The idea was not to be a DRI and pellet operator but an integrated player. In February, Monnet started integrated steel production through a blast furnace (for iron making), an electric arc furnace (steel making), ladle refining, continuous casting and bar mill rolling.
Consequently, revenues moved up from ~493.82 crore in December 2018 to ~660.44 crore in September 2019. In June 2019, it was even higher at ~777.09 crore.
However, towards the end of last year, steel market started showing signs of weakness, thus impacting the turnaround plans.
Steel prices had peaked in November 2018 at ~46,000 a tonne but then started moving downwards with realisations at around ~32,400 till recently.
ICRA expects domestic steel consumption to decelerate to 5-6 per cent in FY20 as compared to 7.9 per cent in FY19 on the back of an unprecedented slowdown in economic activity.
For Monnet, whatever EBIDTA was being generated in the pellet and DRI plants was getting absorbed in the integrated operation.
JSW’S second quarter results presentation mentioned that steel making operations were impacted by earlier announced maintenance shutdown and repairs.
Production from blast furnace was expected to restart in the fourth quarter of FY20.
Net loss, which was at ~77.66 crore in December 2018, widened to ~111.44 crore in September 2019. In FY19, it was at ~3,461.11 crore.
Sources said that if the current market conditions persisted, the turnaround time for Monnet could get stretched though the pellet and DRI plants were operating at 100 per cent capacity. With falling global demand and a weak local market, a turnaround is not expected before the second half of the financial year.
The plan is to take the steel making capacity to two million tonnes eventually and increase pellet production to 2.5 million tonnes.
Also, there are plans of entering the valueadded market with long steel products for applications in the automobile sector, energy, railways and general engineering. The plant is being modified accordingly. With the right market conditions, integrated operations are expected to restart by the end of FY20.