According to newspaper reports, the proposed financial restructuring plan of Sail has received a setback with the Cabinet having decided against the conversion of the Rs 50 bn Steel Development Fund loan in to equity. The cabinet has instead suggested that the entire loan amount be written off. The company might be better off with a write off rather than a conversion.
SAIL is the world's 10th largest and India's largest steel manufacturer. It operates 4 integrated steel plants and 2 speciality steel plants.
The decision to write off the loan would immediately reflect on the bottomline of the company as the interest payments would no longer have to be provided for. Over and above this, Sail will benefit from a lower debt equity ratio, which would help it in raising fresh loans at some future point of time. However, the main advantage of such a move is the avoidance of the cost of having to service a larger equity, which would have arisen if the debt were to be converted into equity. Thus, although unintentionally, Sail might have got a better deal in an attempt to restructure its liabilities.
The financial restructuring plan mooted by Sail is at best a measure to improve the bottomline of the company. However, it is essential to improve the company's margins at the operational level so that it is able to sustain itself in the future. Therefore, the move should be at best treated as one to provide temporary relief to the company, which is grappling to survive the downturn in the steel industry.
The stock is rated as a 'SELL' due the company's low employee productivity and the outdated technology. Moreover, with the steel demand yet to show a definite uptrend, analysts are skeptical of a turnaround in the near future.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407