Crisil has revised the fundamental grade of Monnet Ispat & Energy Ltd to three-on-five (3/5) form the previous gradation of four-on-five (4/5).
It said that the downgrade essentially considers the uncertain repercussions of the CAG’s recent report on coal block allocation. “Any adverse outcome will impact Monnet’s profitability significantly,” Crisil added.
Monnet was previously graded higher based on the expected high profitability of its upcoming 1,050-MW power project based on the allocation of two captive coal blocks — Mandakini and Utkal B2 — in Odisha’s Angul district.
The company secured all the approvals for the Utkal B2 block except the mining lease and it is seeking forest clearances for the Mandakini block. These captive blocks could make the power project “very profitable,” rating agency noted.
“Although the Inter-Ministerial Group (IMG) has recommended that Monnet be allowed to retain Utkal B2 mine, the end usage of this coal block is unclear. Mandakini mine is sufficient to feed the 1,050-MW power plant in the long term. However, in the intermediate period, Monnet will need to buy coal from the open market which will lead to marginal profitability,” Criisl stated.
“We have increased the cost of equity from 21 per cent to 25 per cent to factor in the uncertainties” CRISIL added.