Call up their New Delhi office and you hear hymns in praise of Sri Krishna. Visit their sponge-iron plant in Champa, Chhattisgarh, and Senior Vice President A. K. Chaturvedi will show you a Radha-Govind temple under construction and explain how a turnaround is imminent.
‘‘Once we increase our plant area by 77 acres, Vastu will be in its perfect form,’’ Chaturvedi says. ‘‘Our vehicle (factory) was on three wheels. By covering its north-east corner we will add the fourth. No wonder, by God’s grace we will finally show profits this year.’’
Prakash Industries is a firm believer in the divine, something that flows from chairman Ved Prakash Agarwal, son of Basudev Agarwal, a wealthy businessman from Hissar, Haryana. Like many top defaulters, he too was a victim of the international steel recession.
By the mid-1990s, the foundations of Ved Prakash’s ambitious project — the 330-acre sponge iron plant in Champa — were shaky. It’s a familiar pattern: coal and power prices spiralled, steel prices crashed. And massive bank loans bogged down the company.
The defaults stand at Rs 360 crore today, unchanged since 1998, the year that Prakash Industries was declared a sick industry by BIFR, where it still remains.
Speaking to The Indian Express from Champa, Ved Prakash concedes that should penal and compound interest be added to the dues, their default figure would cross the Rs 500 crore mark. However, he says the new NPA law won’t be used against him because he has no disputes with bankers and after restructuring of loans, he’s paid back Rs 70 crore last year.
It was in 1981 that Ved Prakash decided to branch out from the existing family enterprise, Surya Roshini and diversify, first, into manufacturing TV picture tubes.
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Two plants were set up in Kashipur, Uttar Pradesh and Indore, Madhya Pradesh. Then, the company leapfrogged into what till the late 1980s looked like the road to El Dorado—steel. By the early Nineties, they had diversified into an array of products like PVC pipes, Video tapes, crushed iron ore, sponge iron and wind power.
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DON’T WANT TO LOOK AT STOCK FIGURES ANY MORE: AGARWAL
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EXPERT TAKE
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Ved Prakash Agarwal, Chairman, Prakash Industries, confesses to all his defaults, including the accumulated interest. He spoke to The Indian Express over telephone from his sponge-iron plant at Champa, Chhattisgarh. Excerpts:
• With penal and compound interest added to our dues, our default figure should cross the Rs 500 crore mark’
• The Securitisation Act will have no effect on us because we have never been hauled before the Debt Recovery Tribunal or had disputes with bankers
• Our loans have been restructured last year and we have already paid back Rs 70 crore that we owe to the lending institutions
• Our shares had once touched Rs 200. They are now trading at Rs 4
• I don’t feel like looking at the stock figures any more
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“Earlier the creditors were chasing the defaulters and without much success. The new law reverses the relationship. Henceforth, the defaulters will chase the creditors.”
Arun Jaitley
Former Law Minister &
General Secretary, BJP
“In the next three years my attempt will be to bring NPAs down to the level of the best international banks, to 2 per cent. Besides selling the assets of defaulters to recover loans, SBI will write off bad loans that can’t be recovered and reschedule the loans of delinquent borrowers who have a chance of turning around.”
A. K. Purwar
Chairman, SBI Story continues below this ad |
In 1980-81, when the company started their picture tube facilities, they had a turnover of Rs 1 crore. The division went in for two successive expansions in 1988 and 1989 and grabbed 25 per cent of the market.
For its Chamba plant, Agarwal got technology from Germany and in the mid-1990s was operating at 120 percent capacity. The company soon unveiled plans to manufacture various grades of special alloy steel and set up their own mining division. Their projected turnover for 1996-97 was Rs 1,000 crore. The maximum turnover Prakash could ever achieve: Rs 500 crore (2000-2001).
HOW THEY GOT THE MONEY
The expansion blitzkrieg was mostly funded by banks, led by ICICI. In all, they gave Prakash Industries Rs 360 crore. That this is just a fraction of the whopping Rs 35,000 that banks now have locked up in the iron and steel industry is another matter.
Apart from what company officials describe as the ‘‘crippling’’ rate of interest, the crash of the selling price of sponge iron, and the doubling of input costs of the high rate caused the company to crashland.
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However, while senior officials say that even during their worst phase, capacity utilisation at their Champa plant suffered a 35-40 percent dip, a visit to the plant shows workers still smarting from the long period of recession and labour unrest.
While the promoters of Prakash Industries claim to have kept their channels of communications open with conventional financial institutions despite their defaults, they have done much worse with borrowings made from some Non Banking Financial Institutions (NBFCs).
The company, for instance had topped the list of defaulters of DCM Finances and in June last year, when they tripped on payments twice even after rescheduling of loans, the lenders moved courts. Later a Metropolitan Magistrate in New Delhi issued non-bailable warrants against all company Directors, including the nominees of financial institutions (FIs) on Prakash’s Board.
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‘If this plant closes, it will doom this town’
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Champa-Jangir: Working in fits and starts, sacking workers or not paying them on time, can have bloody consequences in this otherwise depressed region.
Prakash Industries’ Vice President Y. Singh found that out in tragic fashion two years ago when he was murdered not yards away from the 403-acre sponge iron plant here. Singh was given the unpleasant task of weeding out strikers, split the union and firing 800 workers when the company became sick in 1998.
‘‘What do you expect from workers when you deny them wages for months on end?’’ asks Krishan Piayare, one of those who was lost his job and now survives selling fruit outside the local railway station.
At the plant, Senior Vice President (Corporate Affairs) A.K. Chaturvedi shows you the new temple, the new Vastu alignments, the proposed power plant, and tells you about the application for a captive coal mine. He explains how, God-willing, the plant is poised for a recovery.
All across the town — for whom the plant is a lifeline — nervous suppliers and contractors hope Chaturvedi is right. Right now, they fret over their unpaid bills. ‘‘I have to lift scrap to get part of my arrears adjusted,’’ says K.L. Somani, an electrical contractor. ‘‘I have an uncleared balance of Rs 15 lakh and have discontinued supplies.’’ Chaturvedi acknowledges the local support in keeping the plant going. But he knows what Bajrang Didwaniya, a local transporter, also knows: arrears or not, they have no option but to work for the company. ‘‘If it closes, it will doom this town,’’ he says . Ashwani Sharma Story continues below this ad |
Following the move, I D Sharma, the legal advisor and one of the Directors of the company was even detained for a day. It was probably the bad publicity that the warrants generated that prompted Prakash Industries to put out newspaper advertisements asking all their fixed deposit holders to approach them for payments. Ved Prakash describes the incident as ‘‘unfortunate.’’ He says, ‘‘Our borrowings from the NBFCs were all short-term loans that have all been settled. Some NBFCs use muscle power to get their money back. Our man was out in one day and the other warrants were cancelled soon.’’
Company officials now say with the steel industry recovering, Prakash Industries hopes to bounce back within two years. ‘‘Our company was struck with the same malaise that affected most steel companies and almost all our competitors,’’ says company director Vipul Agarwal. ‘‘We hope to soon make a profit and come out of the red.’’
AND HOW THEY GOT AWAY, OR DIDN’T
Bosses of Prakash Industry say that if they are expecting to close the financial year with a Rs 600-crore turnover and show a net profit after a long gap, it is only because they completed their expansion plans by the time the steel industry was buffeted by recession.
Two other factors may have set this company on a near-recovery path. One, the Government finalised allotment of a captive coal mine for Prakash Industries, located 100 kilometres away from their sponge iron plant. Two, their power co-generation plant, also located at Champa, became operational in 2001, assuring them of uninterrupted electricity supply.
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Ved Prakash Agarwal says that after paying back Rs 70 crore to bankers last year, they had a firm repayment plan in place and intend to repay Rs 100 crore every year. When asked about the labour unrest and reports about hundreds of employees being laid off, Agarwal claimed they were actually rehabilitated since their rolling mill were re-located in 1996.
‘‘We switched from manufacturing heavy structural steel to medium structural steel. We did suffer an internal crisis then, but it has been peaceful thereafter. We now have 2,000 people on our rolls.’’
Director Vipul Agarwal adds, ‘‘far from running away from reality, this is one promoter who has a feeling of guilt about the company’s unpaid loans. He is determined to pay back everything.’’
