Bull run for debt heavy steel company stocks

17 Apr 2017

Debt-laden steel companies, including Bhushan Steel, Jindal Steel and Power, Monnet Ispat  and a dozen other smaller ones, have created a buzz in the market, and posted 40-100% gains in the past three months on the back of speculation that their plants would be acquired by larger players.

The share price of Jindal Steel has doubled from about Rs 65 in January this year to touch a 52-week high of Rs 135 in April. Bhushan Steel is also up around 70% from Rs 39 in January to a 52-week high of Rs 69 in April, while Monnet Ispat had managed to gain over 60% from about Rs 24 to a high of Rs 39 during the same period.

This apart, companies including Jindal Steel, Hisar Metal , Shivalik Bimetal, Godawari Power, Ram Ratna Wires, Tata Metaliks among others have risen more than 50% over the past three months on talks of a re-rating due to the impending mergers.
“Market is abuzz that Arcelor Mittal, Vedanta, JSW Group and Ajay Piramal are among the top four business houses that are scouting to buy steel plants of smaller players, including Bhushan Steel, JSPL, Monnet Ispat and Essar Steel, said SP Tulsian, promoter, Premium Investments.

“The government is keenly watching the developments in the sector as some of the steel companies are the largest non-performing assets for banks. It is in the government’s interest that deals happen in the steel sector and hence debt-ridden steel companies have become a good bet for market traders.”

Bhushan Steel has a debt of around Rs 45,000 crore, JSPL has a debt of around Rs 46,000 crore, Monnet Ispat has a total debt of about Rs 9000 crore. Essar Steel, which was de-listed from the exchanges recently, has a debt of about Rs 44,000 crore. Together, these companies account for the largest NPAs in India. “Potential takeover talks of steel plants is the only catalyst pushing the share prices of such steel companies,”.

“The rally in global steel prices in the past few months has brightened the prospects of steel plants, thus providing spark to takeover buzz in many companies.”  While JSW has expressed interest in buying the plant of Bhushan Steel, reports suggest that Vedanta too has thrown its hat in the ring.

Source – economictimes.indiatimes.com