According to the market reports, Tata Steel has currently become the leading bidder for Usha Martin’s specialty steel plant in Jamshedpur with a bid of INR 6,000 crores leaving behind JSW Steel in the acquisition race.
Usha Martin (UM) which is country’s one of the largest wire rope manufacturers and a leading specialty steel producer has put up its steel division on sale last year in an attempt to reduce its debt. In FY 17 the company had consolidated turnover of INR 4,375 crore but a net debt as high as INR 3,718 crore, including nearly INR 3,300 crore long-term debt. The net loss of the company during the year stood at INR 359 crore. In the last financial year, FY18, it has brought down its losses to INR 282 crore. However, the company has last reported a profit in 2013.
How did Usha Martin land in trouble?
UM has a specialty steel plant in Jamshedpur with an annual capacity of 1 MnT. While the majority of company’s steel produced is sold to automotive, heavy-earth moving equipment and oil and gas sector, one-third of its steel output is used in-house for making high-value wire ropes, strands, and bright bars.
The integrated Jamshedpur mill sources iron ore from its captive mine in Jharkhand and makes steel using blast furnace and direct reduced iron (DRI) kilns. The company had a setback when its captive coal mine Kathautia, possessing high-grade fuel, was deallocated under court order. However, it is now developing coal mines at Brinda and Sasai which it got at auctions in 2015. The new coal mines are expected to be fully operational in 2109-20.
Usha Martin’s business suffered significantly due to the global slump in steel market and falling demand of wire ropes and strands from the global oil and mining industries, which till recently were victims of low commodity prices and routine wire ropes price undercutting by the Chinese industry nursing overcapacity.
JSW and Vedanta’s interest in the acquisition of Usha Martin
In May’18, JSW Steel has expressed an interest to acquire the specialty steel business of Usha Martin with a bid of INR 5,000 crore. The company has shown interest in acquiring Usha Martin’s steel unit as a part of its strategy to acquire small distressed businesses in India, UK and U.S. and turning them around without stretching its balance sheet.
Market reports suggest that Vedanta, India’s mining giant has also expressed its interest in acquiring Usha Martin’s steel business but has now withdrawn its interest due to unknown reasons.
Tata Steel’s acquisition of Usha Martin’s 1 MnT specialty steel business would help the former to forward integrate into the production of specialty grades of steel as Tata Steel already has a 10 MnT steel unit in Jamshedpur. This acquisition would help to improve Tata Steel’s product offerings, especially to the auto and railway industries.
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