In an interview to CNBC-TV18, Sandeep Jajodia, Executive Vice Chairman and Managing Director of Monnet Ispat spoke about scrapping Jharkhand steel project.
Sponge iron producer Monnet Ispat today confirmed its plans to scrap proposed 1.5 million tonne steel plant in Jharkhand following delay in getting land, water and raw material linkages. Scrapping of this project would lead to loss worth Rs 15 crore for the New-Delhi based company, Sandeep Jajodia, Executive Vice-Chairman and MD, Monnet Ispat told CNBC-TV18.
"We have been trying to put up this project and get clearances for quite a while but Jharkhand government has not been very responsible… there has been a very chaotic business environment in Jharkhand," Jajodia claimed.
He however added that in case if Jharkhand state government is willing to support the project, the company would be happy to go back.
Within last two weeks, g lobal steel giants like Posco and ArcelorMittal announced its decision to withdraw proposed steel plants in India due to various bureaucratic hurdles. Jajodia also agreed that steel industry is probably going through one of its worst time in the country.
"There is hardly any government spend, there is lack of demand, slowly projects which have been planned over the last few years are coming into commissioning which means there will be a supply glut coming up. So there is a very serious and difficult environment," Jajodia said. The company is however now excited to commission a 1.5 million tonne steel plant in Chhattisgarh. The project is expected to fully commission by September.
Below is the verbatim transcript of the interview
Q: What is the veracity of the statement that you may scrap the proposed plant in Jharkhand?
A: Yes we have been trying to put up this project and get clearances for quite a while but Jharkhand government has not been very responsible and they promised us iron ore mine, they had recommended our case and then they withdrew that recommendation. We have spent lots of money and time to acquire land; we gave deposit money with the Jharkhand government to acquire land on our behalf but that has not come through yet. Plus they had given assurance of water which also they cancelled for reasons known to them. So in other words there has been a very chaotic business environment in Jharkhand.
Q: Should we consider that this is over and done with, you will not go ahead irrespective of any overtures from the government, this is your final decision?
A: No why would we not revisit if the government is willing to come forward and support the project. We would be very happy to go back, there is no issue. We have taken this view today because of the business environment being created there but if the business environment changes, the government becomes proactive, there was no reason for us to stick to this decision.
Q: How much money so far has been invested in getting all these approvals and how much can be recovered?
A: We spent nearly Rs 15-20 crore for investing in land, for various other preoperative expenses. The little bit land, which we hold is already registered in our name but most likely we will never be able to sell back that land. So it is going to be a waste. So this amount of money which has been invested in the development activity of the project will most likely have to be written off.
Q: In case the projects were to be scarped as of today you lose how much?
A: It is about Rs 10-15 crore.
Q: Are any of your other projects facing any kind of similar stress?
A: Today the environment in the country is not that business friendly and steel industry is going through one of its worst times. There is hardly any government spend, there is lack of demand, slowly projects which have been planned over the last few years are coming into commissioning which means there will be a supply glut coming up. So there is a very serious and difficult environment which all industries are facing particularly infrastructure and steel and power.
So we have issues in other areas as well, we have got a project we are trying to put together in Orissa. The issue is also land, water clearances. We have got a project we have recently started to commission, 1.5 million tonnes in Chhattisgarh. That with all its delays and all the issues now we have reached the end of the tunnel and it is now seeing the light of the day, we have started to commission it. We are much exited about that project because it is going to be fully commissioned by September. So we have issues, the country’s situation is such.
Q: What about your current operations, are you getting any benefit or do you loose on rupee depreciation?
A: The biggest thing is that China is a big market as far as steel industry is concerned and China dumping steel into India has always been a big worry for all steel makers.
Q: Every exporter is telling us they have a huge currency advantage over China?
A: Not really but China the question is that their steel mills are subsidized by the government. Nobody really knows the real costing and then we have very peculiar problems in India. We have huge infrastructure issues, we have huge regulatory issues, and we have very peculiar kind of problems here.
Q: So you expect margins to be depressed in the quarter gone by?
A: My point was that with the depreciation of the rupee we will definitely get more protected from imports. For example Monnet Ispat is not much dependent on imports of raw material. So for us it will benefit but for other companies it depends on how much they depend on imports of raw material. We had largely integrated so depreciation in rupee will actually turn out to be a blessing in disguise in tough environments like this.
Monnet Ispat stock price
On March 27, 2015, Monnet Ispat closed at Rs 49.65, down Rs 2.45, or 4.7 percent. The 52-week high of the share was Rs 161.55 and the 52-week low was Rs 49.25.
The latest book value of the company is Rs 404.80 per share. At current value, the price-to-book value of the company was 0.12.
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