Those who bought the shares of Anil Ambani's Reliance Naval and Engineering (RNEL) in the second week of September - when the price was lower than that of a candy - have pocketed a jackpot as its prices skyrocketed on expectations that the government will give orders to the company for building warships. The share price shot up to Rs 7.70 (as on Tuesday early trades) from paltry Rs 0.75 in 11 weeks. It means, if someone had invested Rs 1 lakh in RNEL shares three months ago, it would have become Rs 10 lakh now. The company's market capitalisation stood at Rs 565 crore on Tuesday.

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The shipyard has failed to get creditors' approval for restructuring its loans in September, reported the media. The creditors have claims of over Rs 8,000 crore in the company. There is no change in the company's fortunes, however, speculators are betting big, said Arun Kejriwal, director at KRIS, an investment advisory firm in Mumbai.

In the last financial year, RNEL posted a loss of Rs 10,927 crore on a humble revenue of Rs 180 crore. It made provision for impairment of property, plant and equipments and capital work in progress of Rs 8132.89 crore and of advances and receivables for Rs 883.20 crore in 2018-19.

It has orders for the construction of 20 ships for Indian Navy and Indian Coast Guard. It made a loss of Rs 746 crore in the first half of 2019-20 because of the Rs 719 crore financing cost incurred during the period. The six month's revenue of the company stood at a meek Rs 47 crore.

In September last year, IDBI Bank had moved National Company Law tribunal (NCLT), Ahmedabad, against RNEL, seeking debt resolution under the Insolvency and Bankruptcy Code (IBC). Besides, long-term infrastructure lender IFCI had also filed a similar application in November 2017. The hearing on the matter is still pending.

In March 2015, Reliance Infrastructure took control of Reliance Naval (then Pipavav Shipyard) by acquiring the stake from the company's founder Nikhil Gandhi.

According to RNEL annual report 2019, the company is facing several challenges, including acute cash flow crunch, project delays and erosion of client confidence. "The lack of new orders has led to significant reduction in the company's current level of operations as compared to its capacity," it said.

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The shortage of shipbuilding capacity, especially at the Mazagon Dock and Cochin Shipyard, has been cited as another reason for the share price rise of RNEL, which has unused capacities. "I don't think the government will give orders like that to support RNEL," said Arun Kejriwal.

The company had outstanding fund-based borrowings of Rs 7,835 crore (including interest) as on March 2019. The non-availability of working capital and dearth in new orders are the major issues before the company. The earnings were insufficient to service the debt. "As a matter of fact, it further increased its financial stress," the company said in the annual report.

In July, Prime Minister Narendra Modi's administration has asked global warship makers to submit proposals to build six conventional submarines in India to boost local shipyard capability and plug gaps in the navy's underwater warfare fleet. The government had issued a separate expression of interest on June 20 for an Indian shipyard to build the submarines at a cost of Rs 45,000 crore. The Indian shipyards asked to respond included RNEL, reports said.