Electrosteel IPO: The group has the experience, but its projects are still on paper

The company faces stiff competition from existing players and is yet to clock any revenues; the promoter group has a number of pending litigations against it and high debt remains a concern

Incorporated in 2006, Jharkhand-based steel manufacturer Electrosteel Steels Ltd (ESL) is entering the capital market to raise between Rs368.77 crore at the lower end of the price band and Rs405.65 crore at the upper band through a 100% book building issue. The company is promoted by Electrosteel Castings Ltd (ECL).

ESL currently procures 30% of its coking coal requirement from its Parbatpur (Jharkhand) unit and 70% from other sources.

The company is setting up a plant near Siyaljori village in Bokaro district of Jharkhand. The proposed plant will have a blast furnace, basic oxygen furnace, billet caster and will utilise the hot rolling route. It will produce 1.2 million tonnes per annum (MTPA) of long steel products, comprising 0.5MTPA of 5.5-12.0mm diameter wire rods in coil form and 0.7MTPA of reinforcement bars in straight lengths and bundled in the range of 8-32mm and plain rounds up to 60mm diameter. The plant will have a 0.33MTPA DI (ductile iron) pipe production facility in the same complex and will be provided with hot metal from the blast furnaces. The plant will also have production facilities for 0.27MTPA of commercial billets and 0.40MTPA of pig iron.It has acquired 1,804.70 acres of land for the proposed plant for future expansion plans.

Promoter ECL has four manufacturing facilities of which two are located at Khardah and Haldia in West Bengal, one at Elavur in Tamil Nadu and a coal washery plant at Parbatpur in Jharkhand.

Price: Rs10-Rs11 per share
No of Shares: 3,68,772,000 equity shares with a green-shoe option of up to 15% of the issue
Issue Size: Rs368.77 crore-Rs405.65 crore
Issue Duration: 21st September-24th September
Listing: BSE and NSE
IPO rating: Three, average fundamentals (CARE)
Book Running Managers: Enam Securities Pvt Ltd, SBI Capital Markets Ltd and Edelweiss Capital
Post-listing details
Pre-Issue Promoter and Promoter Group Holding: 38.70%
Post Issue Promoter and Promoter Group Holding: 34%
Post Issue Equity Capital: Rs2,034 crore
P/E ratio: NA (Company has not posted any profits)
Highest in the industry: 55.3
Lowest in the industry: 5.4
Average industry (Composite) P/E: 10.80

There are 61 litigations against the company's promoters with Rs912.38 crore riding on these cases. On 24 December 2009, SEBI passed an order imposing a penalty on promoter company ECL and the individual promoters of ECL for violating insider trading rules. The company procures equipment from China for which it appoints Chinese contractors for integration. However, due to the visa guidelines issued by the Indian government, many of these Chinese contractors had to leave the country causing a slowing down of the projects. 

As a new entrant, ESL faces fierce competition from existing players in the DI pipes industry like ECL, Jindal Saw, Tata Metaliks and Electrotherm, which have market share of 53%, 27%, 13% and 7% respectively.

In the steel production territory, it competes with both private and public sector companies. For the financial year 2009 public sector companies such as SAIL, RINL, etc. had a market share of 28% while private sector companies such as Tata Steel, JSW Steel, JSPL etc. had a market share of 72%.

The company has not yet commenced commercial activities and hence has not posted any revenues so far. Commercial operations of the company's projects are not scheduled to commence until 1 October 2010.

The company requires various licenses from central and state governments to commence its projects. It needs environmental approvals from the Ministry of Environment and Forests, and chimney height approvals from the Ministry of Defence and Ministry of Civil Aviation, and ESL is waiting for a mining lease license approval from the Ministry of Environment and Forests for its proposed iron ore mine at Kodolibad, Jharkhand.

ESL was promoted by its promoter ECL to set up a 2.2 MTPA integrated steel and ductile iron spun pipes project in Jharkhand. In order to focus on backward integration, ECL has set up ESL for implementing the integrated steel and DI pipe plant. The company's promoter ECL will supply iron ore and coking coal to ESL on a cost plus 20% basis for a period of 20 years.

The company' promoter ECL is in the business of manufacturing CI Spun Pipes for over four decades and DI Pipes since the last 15 years. ESL's integrated steel plant is located in Siyaljori in Bokaro district (Jharkhand), just 22 km from Bokaro. This belt has a supply of low-cost manpower pool and raw materials, such as dolomite, quartzite, ferro alloys and additives, which reduces its transportation and procurement costs.

The company made a pre-IPO allotment to Franklin Templeton Private Equity Strategy of 5.58 crore shares at a price of Rs10. IL&FS Financial Services too bought 7.50 crore shares in two tranches in the year 2009 at the same price.




6 years ago

Seeking a challenging career in leading organization with committed and dedicated people,which will enable me to exploit knowledge base leave indelible blueprint of success.


7 years ago

gud for buy


7 years ago


k a prasanna

7 years ago

The project is still under implementation stage, there many loose ends to be tied up. The time and cost over-run will take a heavy toll on the company. There are certain uncertainties, including availability of raw materials at competitive rates. Due to high fixed cost, products pricing will be challenging. It is advisable to skip the issue and enter the counter later.

Orient Green Power IPO may face some strong headwinds

Electricity generation and profitability depends on climatic conditions, particularly wind conditions, which can vary dramatically across the seasons and between locations of the wind farms — the company has a limited history of operating and developing such farms

Chennai-based renewable energy power plants developer Orient Green Power Company Ltd (OGPCL) is hitting the market to raise Rs900 crore through a 100% book building issue. The issue size is 19.14 crore shares of the face value of Rs10 each. The shares are being offered in the price band of Rs47 to Rs55 per share. The shares are priced 4.7 times of face value on the lower side and 5.5 times on the higher side.

The IPO is set to open on 21 September 2010 and will close on 24 September 2010. The shares of the company will be listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The issue has an IPO grading of 4/5 (CRISIL), indicating that the fundamentals of the IPO are 'above average' relative to other listed equity securities in India. However, the grade is constrained by the poor financial health of state electricity boards, the company's main customers.

OGPCL proposes to use Rs60.75 crore from the net proceeds of the IPO to finance the construction and development of four biomass projects in Narasingpur (10MW), Amritsar (10 MW), Vellore (7.5MW), and Patiala (10MW). Besides, it will fund its subsidiary OGP Rajasthan and BWFPL for the construction and development of a biomass and a wind project at a cost of Rs530.20 crore and will fund its subsidiaries BWFPL, PSR Green and SNEL for repayment of loans taken from IndusInd Bank, and to prepay its existing debt availed from Yes Bank at Rs148.19 crore. 

The company generates renewable energy based power focused on developing, owning and operating a diversified portfolio of renewable energy power plants. It sells power from its wind energy projects to private power consumers seeking to supplement state power supplies for captive purposes pursuant to short-term poser purchase agreements (PPAs) in states where such sales are permitted. As of 31 July 2010, its total portfolio of operating projects included 213.03MW of aggregate installed capacity, which comprised 172.53MW of wind energy projects and 40.5MW of biomass projects. Its portfolio of committed and development projects included approximately 836.5MW of prospective capacity, which included an estimated 643MW of wind energy projects, 178.5MW of biomass projects and a 15MW small hydroelectric project.

OGPCL develops wind farms and is currently expanding its presence in Tamil Nadu and developing projects in other locations in India like Gujarat and Maharashtra and internationally, including in Sri Lanka, Croatia, the Czech Republic and Hungary.

The company is promoted by Shriram EPC Ltd (SEPC), Shriram EPC (Singapore) Pte Ltd (SEPC Singapore), and Orient Green Power Pte Ltd (OGPP), Singapore. OGPP and SEPC currently hold 94.74% and 0.14%, respectively, of Orient's share capital. SEPC Singapore is a wholly-owned subsidiary of SEPC and holds 37.70% of the equity share capital of OGPP.

The company reported a net loss of Rs12.24 crore for the year ended 31 March 2010 on a total income of Rs63.21 crore. It had a negative cash flow of Rs4.82 crore in the year ended 31 March 2009. Biomass energy production accounted for 69.23% of its revenue during the year ended 31 March 2010.

There are 32 litigations pertaining to civil, tax, criminal, court summons pending against the company's promoter firm Shriram EPC Ltd.

Electricity generation and profitability depends on climatic conditions, particularly wind conditions, which can vary dramatically across the seasons and between locations of the wind farms.  The company has a limited history of operating and developing wind farms and biomass power plants.

The book-running managers to the issue are Axis Bank Ltd, Goldman Sachs (India) Securities Pt Ltd, JM Financial Consultants Pvt Ltd and UBS Securities India Private Ltd.


Monday Closing Report: Watch out for a short correction

Adding to Friday's gains, the market continued its upmove today, with the Sensex scaling a fresh 32-month high. Brushing off the apprehensions ahead of the Federal Open Market Commission's monetary meeting announcement, due on Tuesday, the domestic market ended in the green for the second day in a row.

The market opened on a positive note despite some cautiousness as its Asian peers were mixed in early trade. Gaining strength from the positive economic indicators announced last week and institutional interest, it continued its steady upmove with support from the influential European bourses that opened in the green. The benchmarks finally ended the day with gains of over 1.5%.

The Sensex added 311.35 points (1.59%) to close at 19,906. The bellwether index scaled a high of 19,927 and a low of 19,445, intraday. The Nifty was just shy of the 5,900 mark, closing the session at 5,980, up 95.50 points (1.62%). The index swung between a high-low of 5,989 and 5.885, respectively.

The overall market breadth was good. Of the 30 Sensex stocks, 25 finished in the green while five declined. The Nifty ended with 44 gaining stocks versus six declining stocks. It was the day of the heavy-weights as the broader indices could not match the performance of the key benchmarks today. The BSE Mid-cap index gained 0.66% while the BSE Small-cap index surged 0.74%.

The top Sensex gainers were Reliance Communications (RCom) (up 5.14%), ITC (up 4.93%), Hero Honda (up 3.96%), Hindustan Unilever (HUL) (up 3.79%) and HDFC (up 3.33%). The losers on the index were Sterlite Industries (down 1.10%), NTPC (down 0.51%) and TCS (down 0.21%).

All sectoral indices ended in the positive zone today. The toppers were BSE Fast Moving Consumer Goods (FMCG) index (up 3.50%), BSE Realty (up 1.73%), BSE Auto (up 1.31%), BSE Metal (up 1.28%) and BSE Capital Goods (CG) (up 1.22%).

State-run Rural Electrification Corporation (REC) today said the Reserve Bank of India (RBI) has granted it the infrastructure finance company status which would allow the firm to lend more to power projects.

With the IFC status, REC can now take an additional lending exposure of up to 5% of its owned funds in case of a single borrower and up to 10% of its owned funds in case of a group of borrowers. The total permissible exposure would thus be 40% of owned funds in case of a group of borrowers.

The company also becomes eligible for issuance of infrastructure bonds and for raising funds up to $500 million (around Rs2,500 crore) through external commercial borrowing (ECB) in a year.

Markets in Asia ended mostly in the green on speculations that earnings optimism would protect the region's economy from any undue economic jitters. The US Federal Open Market Committee (FOMC) is expected to announce the outcome of its monetary policy meeting on Tuesday.

The Hang Seng was up 0.03%, KLSE Composite advanced 0.19%, Straits Times gained 0.15%, Seoul Composite was up 0.29% and Taiwan Weighted rose 0.35%.

On the other hand, the Shanghai Composite shed 0.38% and Jakarta Composite was down 0.40%. The Japanese market was shut for a local holiday.

The US markets closed flat with a positive bias on Friday on a weak consumer confidence report. The markets started on a positive note following strong earnings reports.  The indices gave up most of their gains after a Thomson Reuters/University of Michigan's preliminary September reading on the overall index on consumer sentiment came in at 66.6, down from 68.9 in August.

Consumer sentiment worsened in early September to its weakest level in more than a year, as distress over jobs and finances intensified among upper-income families. The Dow rose 13.02 (0.12%) at 10,608. The S&P 500 was up 0.93 points (0.08%) to 1,125. and the Nasdaq rose 12.36 points (0.54%) 2,315.

The United Stock Exchange of India (USE), a new bourse for currency derivatives, began operations today and witnessed good volumes in the first hour of trade.

The exchange commenced operations in the all four currency pairs allowed by the Securities and Exchange Board of India (SEBI) - dollar-rupee, euro-rupee, yen-rupee and pound-rupee.

USE is the third bourse offering currency trading in the country after the National Stock Exchange (NSE) and Multi Commodity Exchange (MCX).

Foreign institutional investors were net buyers of stocks worth Rs1,518 crore on Friday. Domestic institutional investors were net sellers of equities worth Rs747 crore on the same day.

Core Projects & Technologies (up 1.52%) has announced that it has acquired two companies in the US in the field of education - Technical Systems Integrators LLC (TSI), a Georgia-based education solutions company and New York-based Keenan & Keenan Group, an education consulting company.

The two companies have a combined turnover of $25 million and cater to the needs of students in 1,500 schools in the US.

State-run Rural Electrification Corporation (REC) (up 1.77%) today said the Reserve Bank of India (RBI) has granted it the infrastructure finance company (IFC) status which would allow the firm to lend more to power projects.
With the IFC status, REC can now take an additional lending exposure of up to 5% of its owned funds in case of a single borrower and up to 10% of its owned funds in case of a group of borrowers.

Steel Strips Wheels Ltd (SSWL) (up 6.44%) has informed the Bombay Stock Exchange (BSE) that the company has bagged repeat orders from leading suppliers based in Germany catering to the European after market. The first order is for around 5,000 wheels with a foreign exchange earning of nearly £55,000.
The company is optimistic about repeat business from the region.


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