Monnet Ispat to pare debt; eyes 50-80% growth in FY14

In an interview to CNBC-TV18, Sandeep Jajodia, executive vice chairperson & managing director, Monnet Ispat gives his expectations for the company's growth. He says their current debt situation is at comfortable levels.

"Whatever debts we have raised in the company for the projects are yet to be capitalised. That is still work in progress and that is not really figuring in the P&L account because revenues against the project are yet to accrue. However, for the current running projects our debts are very manageable," he adds.

Below is the edited transcript of Jajodia’s interview to CNBC-TV18. Q: What is your interest cost for Q3? That was actually one of the significant things which dented your bottom-line in the previous quarter despite the fact that you maintained margins at the 25 percent odd mark. How exactly is the debt situation looking for the company at this point and interest costs for the remaining part of the fiscal? A: There are two aspects to the total debt of the company. Currently we are implementing this brownfield 1.5 million tonne steel mill which has a total cost of about Rs 5,000 crore. Whatever debts we have raised in the company for the projects are yet to be capitalised. That is still work in progress and that is not really figuring in the P&L account because revenues against the project are yet to accrue. However, for the current running projects our debts are very manageable. They are almost 1.2:1 which is very healthy in today’s scenario. We do not see it as a threat at all. Even as an overall company outlook, one year down the road, after the whole project was commissioned, we believe that we will never really cross 1.5:1 and then gradually come down. As the revenues for the new project start accruing and come up to the full capacity, our debt levels are only going to come down and be below 1 in about three years time. So, we are not really worried about our debt levels. I think it is manageable for sure. Q: Can you just give us the details of the buyback? How many shares you have bought back? What is the current equity? How much money did you spend? A: We bought back about 25 percent, which was the mandatory obligation to total buyback we have announced, because the markets were really dipping. We spent about Rs 22-23 crore doing that. We actually believe that the company equity is hugely undervalued, inspite of the fact that the Dow Jones index has gone up in the recent times, the commodity equities have not really shown a great increase. So, our top-line and bottom-line is expected to actually go up 2.5-3 times with the commissioning of the new project which will happen in the next three-four months. From thereon, as we progress and as we increase capacities, we expect our revenues and bottom-line to go up a lot. Therefore, we believe that our share prices would hugely increase from here. So, it is very undervalued. That was really the reason to kind of go in the market and do a buyback and get some more confidence with the Street. Q: You bought back 25 percent of outstanding equity? A: No, we bought 25 percent of total buyback we had announced.

Q: How much did the equity dip by? Your total outstanding shares shrunk by how much? A: It didn’t shrink too much. It is about less than a million shares. We have about 800,000 shares which we have bought back, so that much it has shrunk.

Q: How much cash in books do you have at this point? A: We have about Rs 350 crore in cash on books right now, which ofcourse is getting slowly deployed into the new project. So, by the time we commission the projects completely by June 13, most of this cash would have got utilised. All the profits that that are accruing currently, it is also going as our internal accruals and as part of the equity into the project. So, right now we are concentrating all the cash to just build the new mill. Q: Any fresh equity or fund raising plans that you have? A: This project is fully funded, so we do not require any fresh equity for the steel project. Regarding the power project, we are doing it in a separate company called Monnet Power Company which is a subsidiary of Monnet Ispat where we had required some equity. We had placed that with Blackstone. Then, 12.5 percent of the company was with Blackstone and 87.5 percent we still hold in Monnet Ispat. Both of them are major projects which are close to USD 1 billion each. They are fully funded – both equity and debt side. Q: Give us some idea of your key numbers for FY13 and FY14. You have a substantial capex coming in, so how will revenues grow? In first half or second quarter you had about 19-20 percent. For the full year, how much will revenues grow in FY13 and FY14? A: You will not see a very big change in March 13, because only one of the projects out of the full complex will actually be commissioned and that too towards the end of the financial year. However, we should grow by almost 50-80 percent from where we are today. We will have most part of FY13-FY14 revenues from the new plant. Q: So should it be something like Rs 2,500 crore this year and Rs 3,500 crore next year. Is that ballpark? A: It will be about Rs 2,200 crore this year and it should be around Rs 3,500 crore next year. The following year we hope to reach Rs 5,000 crore.