The stock of Bhushan Steel tanked 44 per cent last week. This followed news of the alleged involvement of Neeraj Singhal, the company’s Vice-Chairman and Managing Director in the Syndicate Bank bribery case. On Thursday, Singhal was arrested on charges of having bribed the Syndicate Bank CMD to prevent the bank from declaring a loan to the company as a non-performing asset. It did not help that bankers are considering engaging a management agency to oversee the company’s day-to-day operations to safeguard their ₹40,000-crore exposure.
Bhushan Steel has had trouble with the law earlier too. Last November, the Odisha Pollution Control Board ordered the closure of the company’s blast furnace-2 (now operational) at its Meramandali plant, which was running without permissions. There have been mishaps at this plant earlier too.
Legal woes apart, the company’s financial performance has also weakened. Falling sales and rising interest cost caused the company’s net profit in 2013-14 to nosedive 93 per cent. Starting out as a manufacturer of value-added products, Bhushan Steel forayed into manufacturing (low-margin) primary steel a few years back. While the company’s hot metal capacity has more than doubled since 2010-11, its value-added capacity has remained unchanged. So, it’s unlikely that it will enjoy the same high margins as in the past.
The company’s debt-to-equity ratio of 3.5 times as on March 2014 is high. CARE Ratings recently downgraded the company’s debt facilities.