Rashtriya Ispat eyes IPO in FY19 even as operational woes continue

Four years after a failed attempt to hit the market with an initial public offering, Rashtriya Ispat Nigam Ltd (RINL) that runs the Vizag steel plant, may finally be able to sell 10% government stake.

With recent turnaround in steel cycle, the loss-making shore-based steelmaker might be able to post a small profit in the current financial year, helping the government divesting 10% of its holdings through a maiden float, believes P Madhusudan, chairman-cum-managing director of the public sector entity.

"While it would be a call to be taken by the government, which is expected to go for 10% disinvestment, I am sure that all those variables that go into such decision-making, would be on a better platform now," Madhusudan said, indicating that the provisional operating profit of Rs 200 crore earned in FY18 and a likely posting of profit at the net-level in the current financial year would help the government in making up its mind at a time when it aggressively lining up obscure or even strategically-important public scetor undertakings for stock market debut.

The government first attempted an IPO for RINL in 2014, but the twin tragedies - a fatal accident at its plant followed by devastation caused by cyclone Hudhud which severely hit coastal Andhra Pradesh including RINL's plant - forced the firm to defer the offering.

Till that year, RINL was enjoying a dream run which began in 2002, coinciding with a positive commodity cycle, which helped the company post handsome profits despite a cost-inefficient plant that depends on market sourcing of iron ore, a key raw material, at prices much higher than most steel plants which have captive ore mines.

But with steel prices sliding because of poor demand within and outside the country, such cost inefficiencies pinched the steelmaker hard.

Things might change in the current financial year with turnaround being seen since the fourth quarter of last fiscal, with all of RINL's operating profit of Rs 200 crore coming in during March. The company had suffered a net loss of Rs 1,604 crore in FY16 followed by Rs 1,263 crore loss in FY17.

"With the rebound in steel prices, our investments in ramping up our capacities to 6.3 million tonne of crude steel has started bearing fruit since March and would help us post robust financials this year," the CMD said.

To improve its raw material woes, RINL has entered into sourcing pact with Orissa Mineral Development Corp (OMDC), apart from its existing sourcing pact with mining major NMDC. A pact has been signed with Andhra Pradesh Mineral Development Ltd for Kukunoor iron ore mine which has 25 to 30 million tonne of reserves.

This would help sustain the PSU when its earlier investment of Rs 360 crore in securing iron ore security by taking over Kolkata-based OMDC has almost gone waste.

PSUs like OMDC figure in the list of companies which have continued mining without getting their clearances renewed, and hence, need to pay penalty.

On top of it, OMDC's creditors have now moved National Company Law Tribunal under the Insolvency and Bankruptcy Code.

"We are seeking legal advice on a move by a creditor with about Rs 13 crore dues who have moved NCLT after which a resolution professional has been recently appointed," Madhusudan said.

On the positive side, RINL's railways wheel plant is set to get commissioned at Raebareli, Uttar Pradesh, in a year's time, which will help it earn Rs 600 crore from assured offtake by the Railways.

CHALLENGES GALORE

• RINL posted an operating profit of Rs 200 crore in FY18, all of came in during March
   
• The company had suffered a net loss of Rs 1,604 crore in FY16 followed by Rs 1,263 crore loss in FY17