Why did RINL’s debt widen to over ₹20,000 crore?

Rashtriya Ispat Nigam Ltd (RINL), a state-owned steel-maker, has faced a significant increase in net debt, reaching over ₹20,400 crore in FY23, a 20% YoY increase, resulting in a debt-equity ratio of 52.29. Independent auditors have expressed concerns about RINL's ability to continue as a "going concern" due to cash-flow problems. The auditor's report highlights uncertainties in factors such as demand, sales quantity, prices, and raw material availability, most of which are beyond the company's control.

The company experienced a standalone cash loss of ₹1,987.79 crore and negative cash flow from operating activities of ₹838.54 crore. RINL's accumulated losses stood at ₹7,436.08 crore as of March 31, 2023. Current liabilities exceeded current assets by ₹13,725.67 crore. The debt-equity ratio surged 866% in a year due to increased borrowings and earnings stress.

RINL's adjusted equity fell from ₹3,175 crore to ₹341 crore in FY23, attributed to a net loss of ₹2,859 crore, compared to a profit of ₹913 crore in FY22. Debt servicing capacity significantly decreased as earnings dipped, with the debt servicing coverage ratio dropping from ₹3,000–₹4,000 crore to just ₹83 crore.

Unfavorable market conditions, including the energy crisis and the Russia-Ukraine war, led to operational challenges, restricting production. RINL aims for a gross sales turnover of ₹35,857 crore for FY24, banking on higher capacity utilization. The management expects positive cash flows in FY24 and emphasizes the company's ability to continue as a going concern.

The Chairman and Managing Director, Atul Bhatt, acknowledged technical bottlenecks, financial issues, and working capital problems, with a focus on a debt reduction strategy and securing raw material linkages. RINL, among the few steel makers without captive iron ore and coal mines, reported ₹16,776 crore in sales for the first nine months of the fiscal year, a 21% increase in volumes, with a 47% YoY rise in value-added steel sales.