Electrosteel Steels Ltd (ESL) Unlisted Shares

Are you looking for an opportunity to invest in a large-scale steel plant that has been successfully turned around by one of India’s biggest conglomerates? Electrosteel Steels Ltd (ESL) , now part of the Vedanta Group , operates a 2.51 Million Ton Per Annum (MTPA) greenfield integrated steel plant in Jharkhand. After a complete financial and operational restructuring via the NCLT process, the company has emerged stronger, with improved production, backward integration through captive mines, and a clear growth trajectory.

Company Overview:

• Location: Siyaljori village, Bokaro district, Jharkhand.

• Capacity: 2.51 MTPA integrated steel plant.

• Facilities: Includes Sinter Plant, Coke Oven, Blast Furnace, Basic Oxygen Furnace, Billet Caster, Wire Rod Mill, Bar Mill, and Power Plant.

• Product Range: Pig Iron, Billets, TMT Bars, Wire Rods, and Ductile Iron Pipes.

• Key Feature: Operates with international expertise and the latest technology, synchronized with the highest ecological standards.

The Turnaround: NCLT & Vedanta Acquisition

Due to huge debt, Electrosteel Steels was referred to the NCLT (National Company Law Tribunal) under the Insolvency and Bankruptcy Code. In a landmark resolution, Vedanta Limited acquired the company. The restructuring was comprehensive:

• June 4, 2018: Vedanta nominees inducted into the Board.

• June 4, 2018: Vedanta Star Ltd (Vedanta subsidiary) deposited ₹5,320 Crore in an escrow account for payment to financial creditors.

• June 6, 2018: Over 7,399 Crore equity shares allotted to financial creditors, converting unsustainable debt to equity.

• June 14, 2018: Share consolidation and reduction approved by NCLT.

• June 15, 2018: Vedanta Star Ltd allotted over 1,765 Crore equity shares, becoming the majority shareholder.

• Result: The company was delisted from exchanges at a price of ₹9 per share . At the time of delisting, the enterprise value was around ₹5,300 Crore .

Post-acquisition, Vedanta’s operational expertise has driven significant improvements in performance.

Business Performance: FY21-22 Review

Operational Highlights:

• Highest Ever Production: ESL achieved its best-ever hot metal production at 1.355 Million Tonnes (up 5% YoY).

• Saleable Steel: Recorded highest ever saleable steel at 1.260 Million Tonnes (up 6% YoY).

Financial Challenges (FY22):

• EBITDA Margins: Shrank by 20% YoY .

• Reason: Rising iron ore prices and an unprecedented surge in coking coal prices globally impacted profitability.

Strategic Move: Backward Integration
To reduce dependence on volatile raw material prices and secure supply, ESL acquired two iron ore mines through the Odisha government auction:

1. Nandidih Iron Ore Block (BICO)

2. Nandidih Iron Ore & Manganese Block (FEEGRADE) – located in Barbil, Odisha.

These captive mines will significantly reduce the cost of iron ore, a key raw material, and provide a strong competitive advantage going forward.

Market Outlook (as of FY22):

• Demand: Steel demand was expected to remain stable in 2022, driven by development projects and government spending.

• Price Correction: The company anticipated a sharp correction in coking coal and iron ore prices, which would ease cost pressures.

Government Policy Impact (May 2022):

• Positive: Removal of import duties on coking coal eased production costs.

• Negative: Imposition of export duties on steel products (Pig iron, TMT, Wire rod) and increased duties on iron ore affected domestic steel price sentiment.

Key Investment Highlights:

1. Strong Parentage: Now a Vedanta Group company, benefiting from operational expertise, financial strength, and management stability.

2. Turnaround Story: Successfully resolved through NCLT, with a clean balance sheet and renewed focus on growth.

3. Large-Scale Operations: 2.51 MTPA integrated plant with state-of-the-art technology.

4. Backward Integration: Captive iron ore mines in Odisha will secure raw material supply and improve margins.

5. Operational Excellence: Record production levels achieved in FY22, demonstrating operational ramp-up.

6. Asset Heavy: Owning a large, modern steel plant provides significant intrinsic value.

Risks to Consider:

1. Cyclical Industry: Steel is a highly cyclical commodity, with prices and margins subject to global economic conditions.

2. Raw Material Volatility: Despite captive mines, exposure to coking coal prices (which are imported) remains a risk.

3. Regulatory Risk: Government policies on export/import duties can significantly impact profitability.

4. Debt Levels: While restructured, the capital-intensive nature of the business means debt levels need constant monitoring.

5. Competition: Faces competition from other large integrated steel players like Tata Steel, JSW, and SAIL.

Valuation & Opportunity:

Electrosteel Steels offers investors a chance to participate in a Vedanta-led turnaround in the steel sector. With record production, captive raw material sources, and a large-scale plant, the company is well-positioned for the next upcycle in steel prices.

Given its delisted status and the valuation gap compared to listed peers, there is potential for value creation as the company continues to improve its financial performance.

Ready to Add a Vedanta Group Steel Asset to Your Portfolio?

Buy Unlisted Shares of Electrosteel Steels Ltd exclusively through Unlisted Network.

Invest in a restructured steel giant with captive mines and strong parentage.