JSW Steel, one of India’s leading steel manufacturers, is confronting significant operational and financial challenges following a Supreme Court ruling that deemed its acquisition of Bhushan Power & Steel Ltd (BPSL) illegal. This development threatens to reduce JSW Steel’s production capacity by 10-15% and could result in an EBITDA shortfall of ₹4,000-4,500 crore for the current fiscal year.
Background of the Acquisition
In 2019, JSW Steel acquired BPSL through the Insolvency and Bankruptcy Code (IBC) process for ₹19,700 crore, marking its largest acquisition to date . The acquisition was approved by the National Company Law Tribunal (NCLT) and later upheld by the National Company Law Appellate Tribunal (NCLAT). However, the Enforcement Directorate (ED) had attached BPSL’s assets worth ₹4,000 crore due to investigations into the company’s former promoters for alleged financial irregularities .
Supreme Court’s Ruling and Its Implications
In a recent judgment, the Supreme Court rejected JSW Steel’s resolution plan for BPSL, terming it illegal. This decision has raised the possibility of BPSL heading towards liquidation, which would significantly impact JSW Steel’s operations. Analysts estimate that without BPSL’s contribution, JSW Steel’s consolidated EBITDA could fall short by ₹4,000-4,500 crore in the current fiscal year .
Operational Impact
BPSL has been a vital part of JSW Steel’s production network, contributing approximately 10-15% to its total output. The potential liquidation of BPSL could lead to a substantial reduction in JSW Steel’s production capacity, affecting its ability to meet market demand and fulfill existing contracts.
Financial Consequences
The financial implications of the Supreme Court’s ruling are significant. JSW Steel had invested ₹3,500-4,500 crore in capital expenditure for the growth and maintenance of BPSL since its acquisition in October 2021 . The potential loss of BPSL’s operations could not only result in a substantial EBITDA shortfall but also impact JSW Steel’s overall financial health and investor confidence.
Market Reaction
Following the Supreme Court’s decision, JSW Steel’s shares experienced a decline, reflecting investor concerns over the company’s future earnings and operational stability. The uncertainty surrounding BPSL’s status has added to the volatility in JSW Steel’s stock performance
Strategic Considerations
JSW Steel is now faced with the challenge of mitigating the impact of BPSL’s potential liquidation. The company may need to explore alternative strategies to compensate for the loss in production capacity and revenue. This could involve ramping up operations at other facilities, seeking new acquisitions, or diversifying its product portfolio to maintain market share.
Conclusion
The Supreme Court’s ruling on the BPSL acquisition presents a significant setback for JSW Steel, with potential repercussions on its production capacity, financial performance, and market position. As the company navigates this challenging period, stakeholders will be closely monitoring its strategic responses to ensure long-term stability and growth.
