Steel Plant Valuation Under CIRP: Asset-Based Approach Explained

When a steel manufacturing unit enters the Corporate Insolvency Resolution Process (CIRP), its valuation becomes more than a matter of numbers it’s about understanding dormant assets, regulatory voids, and market uncertainties.

This case study covers how RNC approached the valuation of a 15-year-old integrated steel plant under CIRP, which was inactive at the time and operating without essential infrastructure like power purchase agreements and iron ore linkage.

If you’re a lender, resolution professional, or investor dealing with non-operational industrial assets, you’ll want to read this carefully.

What Was the Background of This Steel Plant?

We were assigned the task of valuing a small but integrated steel plant with an installed capacity of around 0.25 million TPA (tons per annum). The plant was designed to produce steel bars and special steel products tailored for automotive and high-performance engineering applications.

What made this project even more technically interesting was the merchant power plant attached to the facility. It was configured to run using waste gases generated from steel manufacturing processes a smart circular system from an operational perspective.

However, at the time of CIRP admission, the plant had not been operational for an extended period and had entered insolvency under the IBC framework. This created a valuation scenario full of complexities physical deterioration, compliance issues, and lack of buyer readiness.

Major Challenges in Valuing This Plant

Valuing an idle plant is inherently different from valuing a running operation. Here’s what we encountered:

1. Complete Operational Shutdown

The steel plant had not been functional for a long time. As a result, the physical condition of the assets  including high-value machinery and plant equipment — had severely deteriorated.

Rusting, wear-and-tear, and lack of regular upkeep affected usability and resale value. Many machines were outdated, non-compliant with modern safety norms, or would require substantial investment to be reactivated.

2. No Power Purchase Agreement (PPA)

The captive merchant power plant — meant to generate electricity using waste gases — was partly designed to sell power to the external grid. However, there was no Power Purchase Agreement (PPA) in place at the time of our evaluation.

Without a valid PPA, the plant couldn’t sell electricity, and therefore, couldn’t generate revenue from this major capital asset. This negatively impacted both asset and enterprise value.

3. No Iron Ore Linkage

The steel plant had no long-term raw material agreement or iron ore linkage. This meant any future operations would be exposed to price volatility, procurement delays, and unpredictable supply chains all major red flags for any incoming bidder.

4. Expired Regulatory Approvals

Many of the statutory approvals, including environmental clearances and safety certifications, had expired. This meant that any buyer would need to reapply from scratch, facing delays and additional costs.

5. High Refurbishment Costs

Bringing the plant back to operational status was going to be a long and expensive affair. From replacing corroded components to software upgrades and compliance audits, capital reinvestment was inevitable.

This increased the time-to-cash-flow for any buyer reducing their motivation to bid high.

What Was the Core Problem Hindering the Valuation?

The main issue was the impairment of value caused by non-operation and legal non-compliance.

Any serious bidder would have to:

• Reapply for all statutory licenses and environmental clearances

• Negotiate new raw material contracts

• Secure PPAs for the power plant

• Invest significantly to make the plant operational again

All these factors meant the actual realizable value of the plant was far lower than its book value and traditional income-based valuation models like DCF were not applicable.

Our Approach: Valuation as a Going Concern Based on Asset Value

 Step 1: Ground Reality Assessment

We started with an on-site inspection of the plant and power facility. Our engineers and valuation experts assessed:

• The physical condition of each machine

• Remaining useful life

• Salvage potential and refurbishment needs

We also interviewed the existing operations team and reviewed historical asset registers.

 Step 2: Regulatory and Legal Mapping

Next, we documented all expired statutory approvals and assessed the likely time and cost of reapplication. We also:

• Reviewed comparable CIRP cases in the steel industry

• Benchmarked timelines for regulatory approvals

• Modeled impact of delays on valuation

 Step 3: Choosing the Right Valuation Method

Considering the plant was non-operational and income generation was uncertain, we adopted a going concern valuation on an asset basis. This method allowed us to:

• Estimate what the plant could be worth under new ownership

• Apply fair discounts for refurbishment and compliance risk

• Maximize the recoverable value for lenders

Key Result: Actionable Valuation for Recovery Decision

Our final valuation report gave lenders a realistic recovery range. It factored in:

• Adjusted asset values

• Estimated time and cost for recommissioning

• Risk-adjusted projections for future use

As a result:

✅ Lenders were able to set reasonable reserve prices for sale.
✅ Bidders had clarity on what they were investing in.
✅ Insolvency professionals could fast-track resolution with a solid valuation base.

Lessons We Learned from This Assignment

Every valuation has unique insights. In this case, we learned:

• Asset-based models are often better suited for distressed manufacturing units.

• The lack of PPA and raw material linkage can drastically lower perceived value.

• Expired licenses are not just legal hurdles  they’re valuation setbacks.

• CIRP valuations need to consider buyer cost and time-to-operation, not just current asset state.

What You Can Take Away from This

If you’re a lender, IP, or investor handling non-operational industrial assets:

🔸 Don’t rely on book values or past revenue models.
🔸 Always verify asset condition with on-site assessments.
🔸 Use asset-based valuation under going concern when income models don’t apply.
🔸 Factor in statutory and regulatory timelines during recovery planning.

Final Thoughts: Practical Valuation Unlocks Real Recovery

At RNC, our goal is not just to produce a report  but to empower better decisions. In this steel plant case, our valuation helped stakeholders move forward with clarity and confidence in a high-risk environment.

Need Help with Valuation Under CIRP?

Whether it’s a steel plant, power asset, or distressed infrastructure unit we can help you unlock maximum value.

Call: 9737033380
Email: bd@rakeshnarula.com
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1. What is the best valuation approach for non-operational steel plants?

Asset-based valuation under going concern is most suitable when the plant is not operational and income generation is uncertain.

2. How does the absence of a Power Purchase Agreement affect valuation?

Without a valid PPA, the power plant cannot sell electricity to the grid, reducing revenue potential and overall valuation.

3. What challenges arise when valuing distressed steel assets?

Common challenges include expired licenses, asset deterioration, high refurbishment costs, and lack of raw material linkages.

4. Can a steel plant be sold during CIRP without statutory approvals?

It can be sold, but the lack of statutory approvals often leads to lower bids and delays due to re-approval requirements.

5. What factors are considered in asset-based valuation?

Physical condition, salvage value, refurbishment cost, regulatory risks, and market potential under new ownership are all considered.