The headache of the NPA for the banks is not showing any sign of relief under the IBC route. For instance, the Essar Steel which is promoted by Ruias owes over Rs. 40,000 crores to banks, has got only two bidders after the deadline ended on Monday. The Bhusan Steel which roughly owes Rs. 56000 cr of the banks got the highest bid from JSW worth less than 30000 cr. This is a very serious blow to the efforts of the banks who are probably pinning their high hopes on IBC for bailing out their bad assets. Now the question in front of every bank is to how much cut down they should bring on haircut front so as to revive the bidders’ interest. The upcoming days would be very interesting for the stocks like Bhusan Steel, Monnet Ispat, ESL, and Essar steel as many Retail and Institutional investors have shown interest in these turnaround stories to make some quick money.
Every investor needs to understand that story of NPA which is acting as rust on the growth of the Indian economy is the combination of bad policy of govt. and the collusion between banks and Businessman. The govt. in past has put some temporary measures from time to time to address the issue of NPA but to no avail. But this current govt. has taken initiatives by easing out the process of bankruptcy to resolve the NPA issue which clearly shows the intention of the govt. We are confident that the problem of NPA will be resolved in later or sooner in coming time.
Now come to the shares of these companies, for instance, ESL, the big question everybody is asking whether one should buy the shares of these companies???
The answer to this question is very straightforward i.e. Yes, The reason being:
Recently some major players are looking to expand their existing capacity which is as follows:
a) JSW Steel has planned a US$ 4.14 billion capital expenditure programme to increase its overall steel output capacity from 18 million tonnes to 23 million tonnes by 2020.
b) Rashtriya Ispat Nigam Ltd (RINL) has signed a Memorandum of Understanding (MOU) with Kudremukh Iron Ore Company Ltd for setting up of a 1.2 million ton per annum (MTPA) plant project at Vishakhapatnam.
c) Tata Steel has decided to increase the capacity of its Kalinganagar integrated steel plant from 3 million tonnes to 8 million tonnes at an investment of US$ 3.64 billion.
Some of the other recent government initiatives in this sector are as follows:
a) The government of India’s focus on infrastructure and restarting road projects is aiding the boost in demand for steel. Also, further likely acceleration in rural economy and infrastructure is expected to lead to growth in demand for steel.
b) The Union Cabinet, Government of India has approved the National Steel Policy (NSP) 2017, as it seeks to create a globally competitive steel industry in India. NSP 2017 targets 300 million tonnes (MT) steel-making capacity and 160 kgs per capita steel consumption by 2030.
c) Metal Scrap Trade Corporation (MSTC) Limited and the Ministry of Steel have jointly launched an e-platform called ‘MSTC Metal Mandi’ under the ‘Digital India’ initiative, which will facilitate the sale of finished and semi-finished steel products.
d) The Ministry of Steel is facilitating setting up of an industry driven Steel Research and Technology Mission of India (SRTMI) in association with the public and private sector steel companies to spearhead research and development activities in the iron and steel industry at an initial corpus of Rs. 200 crore (US$ 30 million).
India is expected to overtake Japan to become the world’s second-largest steel producer soon and aims to achieve 300 million tonnes of annual steel production by 2025-30.
So if you combine all the above parameters which are favoring steel companies there is no harm for the likes of TATAs, JSWs, and Vedanta to acquire these bad asset and turnaround them.