ValuePickr Forum

Bhushan Steel - Worth Catching a falling knife?

Hi All,

As you all may be aware, subsequent to Syndicate Bank CMD arrest in bribery case, Bhushan steel MD and VC, both are also arrested, along with Prakash Ind Management.

Both the stocks r down in a free fall and circuit after circuit.

Bhushan is down 40 % in 4 days, from 52 wH of 520, stock is @210, with another10 %circuit on friday.

So it worth a look or any short term opprtunistic play, as business is fine, but mgnt is crook, but its not a scam , but a bribery case. Mostlikeley knowing our systems, he will be out in a month.

Similar opportunity came when LIC HF, scam had ahppeend and CMD was arrested/fired and stock rebounded immmediately

Whathas been your experience in such cases, esp seniors, should we wait for knife to stop, vibrate on wodd and then take a call ?

or it shud be outright rejected bec of mgmant integrity ?

Comments Pls ! (on both Bushan & Prakash Ind)

Thanks

Indian banks won’t allow Bhushan Steel to go down under as the exposure is too stiff with nearly 35 banks exposed to it.

The company has good assets . It can be carefully explored.

Yes, all the bankers have proposed that a new management /agency shud be allowed to run day to day operations, but it has to be approved by bhushan board.

Total exposure is 40,000 cr, including all big banks, could become NPA, if timely bail out is not done !

d/e is also v v high i.e 3.5

Prakash ind BS seems OK but the stock hasnt fallen much.

Bhushan steel at first look seems to be in terrible position. the debt has been increasing at a high rate yoy without corresponding increase in sales, as of Mar 14, total debt of abt 32000 cr and sales of abt 10000 cr. If we assume an interest cost of 10% i.e abt 3200 cr per year, that is almost equal to the operating profit.

Unless we have some good info about business, just investing on basis of stock price fall is like gambling.

Prakash ind BS seems OK but the stock hasnt fallen much.

Bhushan steel at first look seems to be in terrible position. the debt has been increasing at a high rate yoy without corresponding increase in sales, as of Mar 14, total debt of abt 32000 cr and sales of abt 10000 cr. If we assume an interest cost of 10% i.e abt 3200 cr per year, that is almost equal to the operating profit.

Unless we have some good info about business, just investing on basis of stock price fall is like gambling.

bhushan is a clear no…no…

gone with the wind and taking down the p.s.u. banks credibility and exposing hob-knobbing in the system.

out of a total exposure of 40k crore i think the most exposed are pnb don’t know total exposure some people say around 10k crores and sbi which has 6000 crores.

look for the pain in the pnb as well performance wise.

prakash i took exposure @ down circuit but in slight loss as of now though the cfo of prakash industries has said categorically that the company has not had any loan exposure from syndicate bank.

the c.b.i. has custody till 12th august let’s see what emerges after that another school of thought says in case of prakash that IF YOU PLAY HAMMER AND TONGS AGAINST RJ THE CHANCES OF YOU GETTING HAMMER IS MORE :wink: the thin dividing line between the gambling and investing here in prakash industries would be a opportunity cost of 25% to 40% if bail is given post 12th habitual gamblers can save the trip to vegas and use the ticket money in great indian casino’s which every now and then have promotions of the month.

@ vivek gautam

how will bhushan service 40k crores

when they are dithering on 100 crores agree with you on assets recently public money was used to buy a bungalow in curzon road delhi for 200 crores.

it has all the hall marks of becoming a BIFR CASE DUE TO PROTRACTED LEGAL WRANGLINGS may open in 2 figures unless some thing dramatic happens which turns cbi case on it’s head as being vitiated and pre meditated.

Yes Bhupesh,

Neeraj Singhal is wrangling over 100 Cr debt but had no qualms in buying a 200 Cr property.

A typical case of fund diversion n siphoning n typical punjabi pappy business man attitude of Key Farak Painda Hai.

What will happen to these PSU banks with such a heavy exposure? Seems For Bajaj Finance also Bhushan is a major NPA as the share price was also manipulated for a long time to take LAS n then scamper .

We need to list down leanings from these companies.

At these valuations, given the risk Bhushan Steel still looks very dangerous to me.

On the other hand, Syndicate Bank might be a better way to play the situation. The P/BV is close to 0.6 and if you account for some losses arising out of bribery/corruption (from the news outlets it seems exposure to Bhushan Steel was just 100Cr?), the P/BV is now in value territory.

Of course, this is still playing with fire, so do your own research.

And I don’t want to hijack the Bhushan Steel thread, so I’ll stop here.

Disc: No position in Bhushan Steel and/or Syndicate Bank

Sorry to say - if you touch crap, your hands are going to get dirty.

There’s no ‘value’ in this. In fact, heaven’s forbid, if you do make some money out of this, it would leave a precedent you’d rather not have in your repertoire.

Sometimes, nothing is better than nonsense.

It continues to hit circuit after circuit and has come to 150 level.

It seems it will go Kingfisher way or it fall is “too big to fail”, as it will take 35 banks also with him. 40, 000 Cr is a huge number for Indian banks and banking system. So, will govt or RBI intervene ? and /or we can make some returns out of it like satyam case ?

The jury is still out ?or the group is convinced that it is untouchable at any price or in any scenario ?

Hi Santosh,

Why dont you read the annual report.

Check how much assets the company has.

What kind of expansion is coming up.

What is the reason of high debt. if it is for expansion, its ok but if they need high debt to run the business its a serious concern.

what kind of revenues can be expected going forward.

Like Donald says ( which is difficult for novice investor like me to ascertain) , how much a buyer will be willing to pay for the company.

If I remember correctly, Satyam did not have too much debt on the books.

i think it is late in the day to wade through all the data when the party is over.

in distressed assets the sanity levels are not what meets the eye and in financial markets nothing is untouchable as long as the price is right.

in satyam’s case i had my buy orders @ 10 it went down to 8.60 and ended the day @ 27 or 28 though i sold after a few days @ 40 patient people did get to see 100+ with in a year.

how cheap is cheap?

in bhushan’s case it is still to be discovered my take is it is not going to trade normally before 65 so just watching and soaking in the news flow.

a sword shows no emotion.

my 2 cents. the risk to reward ratio becomes better around 30 and although it looks quite low now, it is still feasible; I have seen my share of such disasters as well - I recall the journey from 600 odd to 40 odd in Gitanjali. If I recall it right, the LCs lasted for 2 full months in 2013. So, we got to allow it to play itself. The day the LC goes away, people will look at it but the one thing which people want to avoid is the repeat of Kingfisher airline. You don’t want to end up holding a lemon. Here, this is a brick and mortar co and I am sure there should be enough assets to salvage and hopefully some sanity will return.

Money control gives the book value as 395 but I read somewhere that the real book value is around 25(to be verified!!). My 30 target is not very far off. With nearly 2 crores shares pledged, there will be enough supply to keep the LC going at 5% daily for Aug/Sept and even Oct.

Hi,

I wouldn’t dare to compare this with Satyam or MCX. Reason- Poor Business Quality.

Bad business (low ROCE, low FCF, high debt) combined with Bad times can be lethal for a business. Gitanjali, Shree Ganesh, Cebbco, Educomp, Arshiya, Geodesic, Allied digital are perfect examples of this.And this looks like another similar case, to me.

Today’s business standard has an article on this where author calculates Bhushan’s EV based on replacement cost analysis. Debt seems to be more than the calculated EV.

My advise is Avoid unless you see improvement in business conditions OR capital structure (the CDR route).

Anyone is still tracking Bhushan steel after the NCLT case?

Yes, I am tracking closely. Bhushan steel has a capacity of 8mt and the plants are coveted by bidders. As per latest news, Tata steel is in the lead to acquire the stressed assets. Jsw has also bid but is expected to be lower than Tata. Liberty group is challenging the IRPs decision to not consider their bid which was submitted beyond deadline.

On a proforma basis, Bhushan steel has a very high EBITDA potential. I am expecting a top line of 50,000 Cr when utilised fully. I am not sure how Tata steel will treat current shareholders of Bhushan. But if Bhushan were to continue to remain listed it will be a Multibagger stock if all turns out well. However current price suggests high risk.

Discl invested at Rs 70

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Screener shows Contingent Liabilities of Rs.3649.86 Cr. https://www.screener.in/company/BHUSANSTL/

Please pardon my ignorance, I am very new to investing. I have few questions.

  1. Does “Contingent Liabilities” mean “Debt”?
  2. How to check if they have reduced debt in 5 years?
  3. Why does https://www.screener.in/ or http://www.ratestar.in/ say P/E = NA?