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Monnet Ispat to start pellet plant by Dec

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Monnet Ispat and Energy, which is reeling under a huge debt pile and negative cash flow, could see brighter days following commencement of a two million tonne (mt) pellet plant in the third quarter, and if it manages to secure mining lease for captive Manadakini coal block.

The Delhi-based company is involved in mining and power generation apart from sponge iron and steel production. Its steel production capacity, currently operating at around 50%, is likely to improve after commissioning of the pellet plant during third quarter, analysts with Nirmal Bang Securities said in a report after meeting company officials.

Monnet's pellet plant has been delayed by two years following shortage of funds. In absence of the plant, the company had to purchase lumps and pellets from open market leading to high raw material cost. The commencement of plant could help the company to save nearly Rs 2,800/tonnne of production cost, Giriraj Daga, senior analyst with Nirmal Bang Securities, told dna.

The company's long product capacity is currently operating at 70% but flat capacity is operating at around 25-30% due to subdued demand for these products in the market. Monnet Ispat has 0.65 million tonne (mt) of long product capacity and 0.85 mt of flat product capacity.

Monnet Ispat has invested around Rs 500 crore in the pellet plant. "The company has signed long-term contracts with iron ore suppliers from Odisha and Madhya Pradesh and also NMDC. The company will have peak requirement of 1.3 -1.4 mt pellets, while the rest is available for merchant sales," the report said.

The company had expanded in to power business through subsidiary Monnet Power Co (MPCL) and is developing a 1,050 mw merchant power plant. The first unit of 525 mw is likely to start by April 2015 and second by October 2015. The company has witnessed cost overrun of Rs 1,900 crore in developing this project. The revised project costs now stands at Rs 7,000 crore while the company has spend around Rs 4,500 crore till fiscal 2014-end. "Projects costs increased on account of duty benefit reversal on this power plant to the tune of Rs 600 crore and rest is attributed to actual costs over-run and setting up of conveyor belt from the mine to the plant which were not envisaged earlier," the report authored by analysts Giriraj Daga and Aditya Joshi said.

MPCL has signed power purchase agreement (PPA) with West Bengal government at Rs 3.21/unit for 400 mw and with Odisha government as per CERC guidelines for 260 mw and the remaining 170 mw (total saleable power is 830 mw) is open for tie-up or merchant sales.

The company had put remaining PPAs on hold following elections and but is likely to go for such opportunities in the next few months.

Monnet Ispat on its website claimed that this project is envisaged to be amongst lowest cost generation units in the world. "The management expects total variable costs at Rs 0.70/unit with full captive coal at full capacity utilisation," the report said. The power plant will get coal from captive mine- Manadakini coal block, which is located at about 20 km away. The coal will be supplied to the plant through a conveyor belt.

"It has one-third share in the block having reserves of 97 mt. This mine will take six-seven months to start coal production after getting all the clearances. The company has obtained all the clearances, except mining lease, which is stuck because of the pending Supreme Court verdict on coal block allocation," Nirmal Bang report said, adding that allocation of this mining lease could be a game-changer for the company as it could help it negate over-leveraging concerns.

The company's net debt as of fiscal 2014-end stood at Rs 10,561 crore and its debt:equity ratio was at whopping 3.61.

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