Electrosteel Cast

Electrosteel Castings is a water infrastructure company, based in Khardah near Kolkata. The company manufactures ductile iron pipes – the largest in India – and ductile iron pipe fittings. For some time now, the company’s performance seems to have taken a downturn. Though its net sales for Q2FY14 rose 13% at Rs.544 crore, higher operating costs and the huge debt burden, leading to higher interest costs, pushed down the net profit to Rs.19 crore, down 49% (YoY). The only solace is that it was better than the paltry net profit of Rs.55 lakh in Q1FY14.

The company’s interest outgo for the quarter was at Rs.41 crore and this has almost doubled from Rs,26 crore in Q2FY13 and Rs.29 crore in Q1FY14. The company’s debt stands at around Rs.6950 crore. Through an associate company, Electrosteel Steels, the company has initiated a steel making project which has run into severe cost overruns and execution delays causing a lot of financial stress. The company has given a corporate guarantee of Rs 450 crore to this associate company. The delay in getting approvals for its backward integration initiatives through the allocation of iron ore and coking coal mines is also causing stress. In Feb’12, the company received forest stage-I clearance for its iron ore mines located at Kodolibad, Jharkhand, from Ministry of Forests and Environment (MOEF). Since then it has been waiting for stage-II clearance to start developing the mine and resume production. The mine has reserves of 91mn tonnes with 64% iron content.