Tata Steel is eyeing synergies with Usha Martin's Jamshedpur facility

Tata Steel, which pipped four others to a definitive agreement for Usha Martin’s steel business, is eyeing synergies with its Jamshedpur facility.

The Usha Martin unit is located in Adityapur, which is near Jamshedpur. “The proximity of the plant to our existing steel works in Jamshedpur brings in significant synergy in logistics of supply of raw materials, especially intermediary steel products,” said a Tata Steel spokesperson. Tata Steel’s Jamshedpur facility has a capacity of around 10 million tonnes. 

While most other companies in the fray were discussing an offer in the range of Rs 35 billion, Tata Steel offered a cash consideration of Rs 43-47 billion, subject to transaction adjustments. Apart from Tata Steel, Usha Martin’ steel business had evoked interest from JSW Steel, Liberty House, Kalyani, and Vedanta.

However, Tata Steel’s rationale is that it was an attractive investment as the cost of building this investment with time value of money would be much higher. That was the same principle that Tata Steel had applied when it acquired Bhushan Steel under the Insolvency and Bankruptcy Code (IBC). The deal translated into a recovery of Rs 352 billion for lenders.

Usha Martin has some extra land, which can be used to ramp up the capacity from 0.65 million tonne to one million tonne. However, it is not clear whether the capacity can be increased any further. The deal would give Tata Steel an opportunity to consolidate its presence in iron ore and coal sector in Jharkhand and leverage its mining capabilities. 

Usha Martin has a producing iron ore and a coalmine under development. The Tata Steel spokesperson also said the range of products produced by Usha Martin on date would enhance Tata Steel’s portfolio in the long products segment with a focus in the high-end segment of automotive and engineering.