Usha Martin, Usha Beltron Merger Aimed At Garnering More Funds?

Usha Martin Industries Ltd and Usha Beltron Ltd, companies of the Calcutta-based B K Jhawar group, announced a merger on November 12. The merger move is believed to have been made to restructure the overall business of the two companies. The merged company would be called Usha Martin Industries Ltd to capitalise on the brand name of Usha Martin.

According to B K Jhawar, chairman, the decision to merge the two companies was taken in view of the changing business scenario, and the move is expected to help in building a financially stable and stronger company not dependent critically on one business. He also expects the merged companys total turnover to double by the turn of the century, and the profits to be higher than the aggregate profits of the two erstwhile companies.

 

It is hoped that the merger will bring about substantial improvement in terms of operational efficiency, product development and market development. In this context it may be worthwhile to analyse the financial performances of the two companies, and examine how far the merger will help to improve the overall performance.

In 1996-97, while Usha Martin registered a 68.31 per cent increase in its sales turnover, Usha Beltron registered a slower growth of 17.40 per cent. Inspite of an increase in sales turnover, profit growth of both the companies dropped . Most of the major wire rods producers witnessed lower offtake due to sluggish demand and inventory corrections by the end users. Usha Beltron witnessed an abnormal interest burden during the year due to delay in release of orders by the Department of Telecommunications (DoT) . Tax burden of the companies increased due to provision of MAT.

During the last financial year, operating profit of Usha Martin recorded a decrease of nearly 19 per cent. Its profit before tax and profit after tax dropped by 40 per cent and 48.73 per cent respectively. In the first half of the current year, despite a fall of 25 per cent in gross sale, Usha Beltron managed to increase its net profit by nearly 35 per cent due to lower tax and interest burden. Other income of Rs.3.2 crore, which includes capital gain of Rs 2.1 crore, helped the company to improve its bottomline during the first six months ended September,1997. So, the merger of the two companies has been made with an eye to influence the future financiers to fund that division.