Whalesbook
Evonith Steel, formerly known as Uttal Galva Metallics and Uttam Value Steel, has announced an ambitious expansion plan to significantly increase its steel production capacity. The company intends to grow its capacity from the current 1.4 million tonnes per annum (mtpa) to 3.5 mtpa. This substantial expansion will require an investment of approximately ₹5,500 crore to ₹6,000 crore spread over the next three years.
The funding for this growth initiative will be a multi-pronged approach, utilizing internal accruals generated from the company's operations, taking on new debt, and culminating in a planned Initial Public Offering (IPO) within the next 18 to 24 months. This IPO is expected to provide further capital for growth and public market participation.
Evonith Steel was acquired in 2021 by Nithia Capital and CarVal Investors, UK-based firms specializing in stressed asset management, through a National Company Law Tribunal (NCLT) driven process for about ₹2,000 crore. Since then, the company has already invested ₹1,500 crore from its internal cash flows to enhance its finished steel capacity to 1.1 mtpa. A new 0.3 mtpa Ductile Iron Pipe Plant is also scheduled to go online by December.
The company's financial performance has seen a strong turnaround, with a net current asset base of ₹1,400 crore and an EBITDA run rate of ₹1,200 crore, projected to increase to ₹1,500 crore next year. Evonith Steel has maintained a compounded annual growth rate (CAGR) of over 30% in volume for the past five years and plans to sustain this pace. It currently produces flat steel, hot-rolled coil, and galvanised steel for clients like BHEL and Indian Railways, with plans to enter the exposed automotive and white goods markets post-expansion.
Adding to its positive outlook, Crisil Ratings has upgraded Evonith Steel's credit rating to ‘AA- (Stable)’. This upgrade reflects the company's healthy operational performance, strategic location in central India near raw material sources, and a strong financial risk profile.
Impact:
This significant expansion plan signals strong growth prospects for Evonith Steel and the Indian steel sector. The planned IPO could offer a new investment opportunity for the public. The capacity increase will boost domestic steel production and potentially create jobs, contributing to India's manufacturing capabilities. The credit rating upgrade indicates improved financial stability and lower risk associated with the company.
Rating: 8/10
Difficult Terms:
- Capacity: The maximum output a manufacturing facility can produce within a specific period.
- MTPA (Million Tonnes Per Annum): A unit measuring production volume, indicating millions of tonnes produced in one year.
- Promoters: The founders or original owners of a company who typically retain a significant stake.
- Internal Accruals: Profits retained by a company after expenses and dividends, which are reinvested into the business.
- Debt: Funds borrowed by a company that must be repaid, usually with interest.
- Initial Public Offering (IPO): The process by which a private company first sells shares to the public, becoming a publicly traded company.
- NCLT (National Company Law Tribunal): A quasi-judicial body in India that hears and adjudicates matters related to corporate law and insolvency.
- EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization; a measure of a company's operating performance.
- Net Current Asset: Current assets minus current liabilities. A positive value indicates short-term financial health.
- Gross Debt: The total outstanding borrowings of a company.
- Net Debt: Gross debt minus cash and cash equivalents.
- Liquidity: The ability of a company to meet its short-term financial obligations.
- Unutilised Credit Lines: Borrowing facilities that a company has secured but has not yet drawn upon.
- Compounded Annual Growth Rate (CAGR): The average annual growth rate of an investment over a specified period, assuming profits are reinvested.
- OEM (Original Equipment Manufacturer): A company that manufactures parts or components that are used in another company's final product.
- Ductile Iron Pipe: A type of pipe made from iron that is strong, flexible, and resistant to corrosion, often used for water and sewage systems.
- EBITDA Run Rate: An annualized projection of EBITDA based on recent operational performance.
- Galvanised Steel: Steel that has been coated with zinc to prevent corrosion.
- Automotive Industry: The sector involved in the design, manufacturing, marketing, and selling of motor vehicles.
- White Goods: Large household appliances such as refrigerators, washing machines, and ovens.
- Crisil Ratings: An Indian analytical company that provides credit ratings and research.
- ‘AA- (Stable)’ Rating: A high credit rating signifying very low risk of default, with the outlook stable.