Race for Usha Martin steel unit

JSW, Tata Steel and Liberty House have emerged as the top contenders for Usha Martin's steel business, extending their rivalry over Indian stressed assets witnessed in the last six months.

By Sambit Saha in Calcutta
  • Published 10.09.18

Calcutta: JSW, Tata Steel and Liberty House have emerged as the top contenders for Usha Martin's steel business, extending their rivalry over Indian stressed assets witnessed in the last six months.

The companies are carrying out due diligence for the unit and price bids may be called by the end of this month, sources said. SBI Caps is leading the sale process, which is being overseen by a committee of independent directors.

Apart from the trio, Vedanta and Kalyani Steel had expressed willingness to acquire the Jamshedpur-based unit and signed non-disclosure agreements. However, they are understood to be not actively pursuing it for now.

Seshagiri Rao, joint managing director and group CFO of JSW Group, confirmed interest of JSW Steel in Usha Martin, which is trying to sell the steel business to pare debt.

"We are interested in assets which have niche advantages and looking at the alloy steel side," Rao told The Telegraph during a conversation over the weekend, adding that the process has started.

JSW, Tata Steel and Liberty House of the UK are locked in a separate battle to takeover Bhushan Power & Steel Ltd (BPSL) through the insolvency process.

The matter will come up for hearing at the National Company Appellate Law Tribunal later this month. JSW has made the highest bid, but Tata Steel has challenged the process.

Despite being outside the rigours of the Insolvency & Bankruptcy Code, 2016, Usha Martin's sale process may be far from a regular corporate transaction.

Two factions of the company's promoters - Prashant Jhawar and his cousin Rajiv Jhawar - are at loggerheads over the control and ownership of the business. As they equally own the 52.13 per cent stake in Usha Martin, it would be impossible to strike a deal unless both the Jhawars agree.

Initially, Usha Martin was trying to sell the wire rope business and appointed RBS to find a buyer as no one was interested in the steel asset. Later, it brought in McKinsey to come up with a road map for the steel business.

However, as the global steel cycle turned positive, backed by strong demand and prices, interest for the steel business seemed more.

Incidentally, Usha Martin was globally known as a wire and wire rope player with presence in several overseas locations before it went for backward integration and built a million tonne alloy steel plant.

Rao said India could see 7-8 per cent demand growth for the entire steel sector, driven mainly by public expenditure.

Despite the ongoing quarter being traditionally a lean season for the steel business as the monsoon tapers requirement from the construction sector, demand remained buoyant, he added.

In the first quarter of 2018-19, the steel business reported Rs 1,048.11 crore in sales, accounting for 70 per cent of the revenue before adjusting for inter-segment transaction.

Likewise, profit before tax from steel at Rs 112.75 crore accounted for 66 per cent of the PBT on a standalone basis.

The company posted a net profit of Rs 19.27 crore after paying Rs 142.88 crore of finance cost.

"At a million-tonne capacity in specialty steel production with backward integration and operating flexibility in its production, Usha Martin has the opportunity to further increase revenues, market share and profitability in the continuing commercial vehicle and automotive upcycle.

"The acquisition of such an asset by a larger player offers the opportunity to quickly get into the specialty steel business while diversifying the product basket, elevating margins and driving synergies.

"Players are also likely to look at paying a time-value premium for the acquisition to take advantage of the upswing rather than building such capacities. This is what is probably attracting top players to the Usha Martin steel asset," Atanu Mukherjee, president of MN Dastur & Co, said.