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The National Company Law Tribunal (NCLT) has approved a Rs2,875cr bid by Aion-JSW to acquire Monnet Ispat & Energy Ltd. The consortium was the sole bidder for the company. This bid represents a ~74% haircut to lenders of Monnet Ispat. The debt outstanding for Monnet Ispat stood at ~Rs11,000cr.
The consortium would hold ~75% equity in Monnet Ispat as part of the resolution plan. Of this, Aion Investments would hold ~70%, while JSW Steel would hold ~30%. This represents a tentative equity dilution of ~75% for existing shareholders. However, details are currently awaited regarding the formal structure of the deal.
Monnet Ispat owns a 1.5 million tonne integrated steel plant along with 230 MW captive power plant. Monnet Ispat was one of the 12 accounts that the Reserve Bank of India had identified in its first list to the NCLT along with other companies such as Bhushan Steel and Alok Industries.
JSW Steel Ltd is expected to see revenue growth aided by (a) 3% CAGR volume growth in sale of steel products supported by government spending on infrastructure, (b) EBITDA margins are also likely to expand by ~300bps owing to better utilization levels and cost savings from backward integration. JSW Steel would see revenue and PAT CAGR of 7.1% and 16.9% over FY18-20E respectively with an EBITDA margin of 23.7% in FY20E. The stock is currently trading at 10.7x FY20E EPS.
JSW Steel has a domestic crude steel capacity of 18mn tonnes per annum (mtpa) at present. The company aims to expand this production capacity to 23mtpa by 2020. The company owns a plate mill in USA and has recently acquired an integrated steel plant. This brings the total capacity based in the USA to 4mtpa. The crude steel production for Q1FY19 for JSW Steel stood at 4.12mn tonnes, an increase of 5% yoy. In Q1FY19, production of flat steel stood at 2.87mn tonnes (up 4% yoy), while production of long steel stood at 0.93mn tonnes (up 12% yoy).
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