Usha Martin aims to sell its steel business by FY19 to pare debt

Usha Martin hopes to sell its steel business within the end of this financial year despite the arm posting a rebound in both revenue and profitability in the first quarter of FY19. 

The company recently appointed a committee of independent directors to recommend proposals from interested buyers.

Sources said at least five companies have evinced interest to buy the steel assets.

The company, which also makes wire ropes, posted 18.40 per cent increase in revenue at Rs 10.48 billion and a gross profit of Rs 1.13 billion from the steel business in the quarter ended June. In the first quarter of the last fiscal year, its earnings and gross loss from this line of business stood at Rs 8.85 billion and Rs 3 million, respectively.

“The committee of independent directors will submit their recommendations to the board and in case they consent to it, nod from the shareholders will be sought. We hope to complete this process by the end of this fiscal year,” Chief Financial Officer Rohit Nanda told Business Standard during a discussion on the company’s financial performance.

According to Nanda, this sale will reduce Usha Martin’s accumulated debt of Rs 45 billion significantly.

As on June 30, the firm’s steel assets stood at Rs 51.09 billion, while the liability on the same segment was Rs 21.13 billion. In comparison, the assets in its wire and wire rope segment stood at Rs 19.42 billion, with a liability of Rs3.66 billion. The maximum liability stood on its corporate balance sheet at Rs 40.73 billion, while the asset in this category was Rs 2 billion.

On whether the company intended to change its plan of selling the steel business since it was bouncing back, Nanda said, “The call has been taken to reduce the total debt of the company and we will proceed with the decision.” 
 

The company’s one million tonne plant in Jamshedpur produces 50,000 tonnes of steel every month. Around one-third of this production is used in-house by the wire and wire rope division and the rest is sold to buyers, who in turn supply it to the commercial automotive sector. 

“The rebound in steel since last year is on account of increased demand from the commercial automotive and tractors segment,” Nanda said, adding the focus of the company was now on the wire and wire rope division.

During the first quarter of 2018-19, revenue from the wire and wire rope division shot up by 22 per cent at Rs 6.06 billion, while the gross profit remained flat at Rs 0.55 billion.

According to the Nanda, the consolidated Ebitda margins on net sales during Q1 stood at 17.2 per cent, as against 11.2 per cent, on a sequential basis.
 

Earlier, the company had appointed an investment banker to explore options of selling the wire and wire ropes division to raise Rs 47 billion to pare its debt. But with the steel sector reviving, Usha Martin felt it would be better to sell its steel assets as it would fetch a better valuation.