Fate almost sealed for ABG Shipyard, Alok Industries, Lanco Infratech

They were once seen as among India’s most promising growth stories. Now, however, the fate of ABG Shipyard, Alok Industries and Lanco Infratech is seen as near-certain but in the opposite direction.

With huge debt, few takers for their assets and the whopping write-offs (‘haircuts’) that banks are likely to take on the loans given to these companies, industry experts believe liquidation of the trio are among the few options.

All three have defaulted on their huge payment obligations. As a result, they figured in the first list of the top 12 default cases referred by banks (on an order from the Reserve Bank) to the National Company Law Tribunal (NCLT), under the Insolvency and Bankruptcy Code (IBC). It is estimated that bankers will have to take a haircut of at least 80 per cent on their dues from each of these companies. An Edelweiss report estimates the haircut for ABG Shipyard at 81 per cent and at 85-90 per cent for the other two. Together, the debt liability of these three is a whopping Rs 930 billion.

Not surprisingly, their stock and market values are at abysmal levels. And, few bidders are interested; only meagre offers have come from those that are.

What went wrong?

Alok Industries,by its annual report of 2016-17, counted itself among India’s largest and fully integrated textile companies, with presence in the cotton and polyester value chain. A sharp fall in its sales seems to be the starting point of its trouble. The company extended its accounting year to an 18-month period twice – April 2012 to September 2013 and October 2013 to March 2015. It saw annualised consolidated net sales fall 20 per cent in the 12 months ending March 2016. With sales down and expenditure being higher, operating loss was Rs 26.2 billion in 2015-16.

Since then, operating loss has been a feature, with 2016-17 seeing Rs 14 billion of this. Along with continuously surging debt, up from Rs 180 billion at the end of March 2015 to Rs 295 billion now, which has led to higher interest payment, losses at the net level have only increased. While consolidated numbers for 2017-18 are unavailable, loss in the standalone business was Rs 168 billion for the financial year’s first nine months, with sales having again plunged and operational expenses surged.

“Our major challenge remains the current debt situation and the corresponding working capital crunch, further affecting the utilisation levels of all divisions and overall performance,” Alok Industries’ chairman S K Bhoan said in the company’s 30th annual report, for 2016-17.

Alok had net fixed assets (post depreciation) of Rs 160 billion and net current assets of Rs 90 billion in 2016-17. It has seen its liquidation (minimum) value pegged at Rs 45 billion. However, the sole bid under the IBC, jointly by Reliance Industries and JM Financial Asset Reconstruction Company, was not approved by the Committee of Creditors last Sunday.

Lanco Infratech’s story is not very different. The Gurugram-based flagship company of the Lanco group was once touted among the fastest growing companies in India. It is involved in construction, power, real estate and several other segments.

Its consolidated sales have been on a decline, from Rs 137.4 billion in 2012-13 to Rs 73.4 billion in 2016-17. At the net level, the loss rose from Rs 10.7 billion to Rs 22.6 billion in this period. Operational performance has been volatile and interest costs have been elevated, leading to losses at the net level. Over the past seven years, debt has grown six-fold, thanks also to a growth drive.

Lanco’s EPC or engineering, procurement and construction business has seen revenue and profit shrink in the past few years. The power business, largest revenue contributor, has also seen these shrink.

“The performance in FY17 was affected due to inadequate fuel supply for operation of installed capacity, regulatory approvals, lack of Power Purchase Agreements, delay in sanction and disbursement of loan by lenders and liquidity problems (referring to the power business),” said L Madhusudhan Rao, executive chairman in an address to shareholders on December 22, 2017.

Lanco’s installed power capacity was 3,465 Mw and it generated revenue of Rs 53.8 billion, with an Ebit (earnings before interest and tax) of Rs 9.2 billion in 2016-17. The previous year’s figures were Rs 63.2 billion and Rs 18.7 billion, respectively. Under-construction projects totalling 4,536 Mw include Lanco Amarkantak stages-III and IV 1,320 M2), Lanco Babandh (1,320 M2), Lanco Vidarbha (1,320 M2), Lanco Teesta (500 M2) and Lanco Mandakini (76 Mw). These face execution delay due to lack of funds. The company also has road and solar power assets that generated Rs 9-10 billion each in revenue in 2016-17, and an operational coal mine in Australia. As these operational assets are in diverse fields, experts say piecemeal sales could help attract more buyers.

For ABG Shipyard, the latest consolidated data available is for 2014-15. However, the standalone numbers that contributed 95 per cent of its consolidated revenue itself tell the sorry state of affairs. Since 2011-12, standalone net sales have plummeted from Rs 23.9 billion to Rs 340 million in 2015-16. Net profit was Rs 1.8 billion in 2011-12; it clocked a whopping loss of Rs 37 billion in 2015-16. The unaudited results for 2016-17 show revenue halving to Rs 160 million and losses up to Rs 57.2 billion. With almost nil revenue, expenditure and interest costs are reflecting in the company’s bottom line. The assets ABG owns (it was once among the largest in shipbuilding facilities) can find takers but at what price?. As against the total of receivables at a little over Rs 181 billion, experts believe the assets could fetch no more than Rs 50-60 billion.