Submission of a sound turnaround plan to its lenders will be key for Gammon India, as it plans to knock on their doors for restructuring its debt. The company, analysts say, would have avoided the situation, if it would have been able to monetise its large land bank.
Gammon, on Thursday, informed the Bombay Stock Exchange that it would be approaching its lenders ?for realigning the company?s debts through the corporate debt restructuring process?. Gammon India?s share price closed 1.87% up at R27.30 on Thursday, on BSE.
?The company has been under stress for quite sometime now, so the move to approach lenders for restructuring does not come as a surprise. But now, one has to see what turn around plan do they present to lenders,? an analyst with an Indian brokerage said. The company through its subsidiaries holds about 200 acres of land around Mumbai and Bhopal in Madhya Pradesh.
Gammon India has a debt of around R3,500 crore and reported a net loss of R261.6 crore at the end of December 2012. The company?s net loss for the nine-month period ended December 31, 2012, stood at R320.6 crore.
The stressed civil contractor?s income has also not kept pace with its rising costs. While the income from operations increased by just 11% to R1,216 crore in the December ended quarter from the previous quarter ended September, Gammon?s total expenses surged by 32%.
IDFC in a February 2013 report had rated the stock as ?underperformer? saying excessive debt continues as a stress on Gammon?s balance sheet, and the company?s tight liquidity position is impacting execution, constraining visibility on its growth.
?The current levels of cash generation make debt levels unsustainable, unless debt is reduced through asset sales (mainly land sales),? said the report.
According to its annual report for the 2011-2012 fiscal, Gammon had acquired land parcels with the aim of having a presence in the real estate sector.
The company holds a 180-acre plot in Dombivali, on the outskirts of Mumbai, which it had acquired at a total cost of R726 crore from automobile maker Pal Peugeot and proposes to develop a township project there. It holds another 15 acres in the vicinity through another subsidiary. A 15-acre land parcel in prime area in South TT Nagar, Bhopal, is proposed to have mixed-use development of around 2.3 million square feet.
?Initially, they had ambitions of developing it themselves, later in the year they came around to say they may sell those parcels, but eventually they could not with differences over valuation,? said another analyst.
Repeated attempts to reach Gammon India for its comments on the article remained unanswered.
According to recent media reports, cash strapped Gammon India is also believed to be in talks for raising R1,000 crore by selling stake in its subsidiaries. The reports said that the company may look at selling a 24% stake in its listed infrastructure arm, Gammon Infrastructure to reduce debt.
However, the company later clarified to the stock exchanges that while it remains its general intent and thought it has not sought formal approval of the company?s board nor has mandated any bank or advisor on the divestment plans.