JSW Steel Faces Challenges After BPSL Order

New Delhi, May 3 (PTI) Sajjan Jindal-led JSW Steel may face challenges in meeting its expansion target and maintaining revenue guidance after the Supreme Court judgement that rejected its resolution plan for Bhushan Steel and Power Ltd (BPSL), say analysts.

The company may also see a production cut of around 10 per cent besides rejig in capital expenditure plans in view of the huge amount paid to the creditors of debt-laden BPSL, they said.

The Supreme Court on Friday set aside a resolution plan submitted by JSW Steel for Bhushan Steel and Power Limited (BSPL), holding it illegal and in violation of the Insolvency and Bankruptcy Code (IBC).

A bench comprising Justices Bela M Trivedi and Satish Chandra Sharma criticised the conduct of all key stakeholders in the resolution process -- the resolution professional, the Committee of Creditors (CoC) and the National Company Law Tribunal (NCLT) -- for enabling what it termed a "flagrant violation" of the IBC, and ordered the liquidation of BSPL under the IBC.

In 2019, JSW Steel won the bid to acquire Bhushan Power & Steel under the IBC for a little less than Rs 20,000 crore. Later, in a letter to BPSL employees, Jindal had said, "Your contribution will be key in bolstering our ambitious growth plans of achieving 45 MTPA capacity well ahead of the 2030 timeline. The synergies we draw will also play a pivotal role in transforming the lives of millions of our stakeholders."

Speaking with PTI, an analyst at IIFL said BPSL has a capacity of 3.5 million tonne and if it goes from the hands of JSW Steel then it will definitely put stress on the balance sheets of JSW Steel.

"BPSL was generating Rs 2,400 crore EBIDTA, if it goes then an EBIDTA of Rs 2,400 crore vanishes straight away. It will impact JSW Steel's cash flow making debt servicing a problem. Besides revenues may also be impacted," the analyst said requesting anonymity.

Dhruv Goel, CEO BigMint said BPSL contributed around 10 per cent to overall production of JSW Steel India operations. JSW Steel has a capacity around around 36 MT in India.

JSW Steel acquired Bhushan Power & Steel (BPSL) in September 2019 after the National Company Law Tribunal (NCLT) approved its resolution plan. The acquisition was completed in March 2021, Goel said, adding BPSL produces mainly hot rolled coils (HRC) which are sold in the merchant market to pipe makers and re-rollers.

As BPSL's capacity expansion and operations gradually stall, JSW is likely to focus on its other investments in Odisha - notably the 5 MT plant it has proposed to set up with POSCO, as well as a 13.2 MT greenfield facility it has proposed to set up with an outlay of Rs 65,000 crore.

VK Vijayakumar, Chief Investment Strategist, Geojit Investments said the development may not impact the company in the long run but in the short run it is going make an impact. They may have to re-work their expansion and capex plans. They may have to make other acquisitions or come up with new plants to meet their target.

Analysts were also of the view that besides paying the creditors, JSW Steel has also made several investments in BPSL. If the company has the right to these investments then it will definitely affect its revenues.

In FY25, JSW Steel produced 26.98 MT crude steel, posting a 6 per cent year-on-year rise over 25.55 MT in FY24.

An email query sent to JSW Steel seeking a reaction to experts' comments remained unanswered.

In an exchange filing on Friday, JSW Steel said it will review the Supreme Court order rejecting the company's resolution plan to take over Bhushan Steel and decide on the future course of action.