McKinsey to help Usha Martin develop steel business action plan

27 July 2017

Waning demand for wire rope has seen Usha Martin, an India-based giant in the segment, fall on hard times. The company was recently forced to find a way to manage its debts - including the sale of its most profitable unit. McKinsey & Company has been called in to create a roadmap for the rest of its business - largely in steel - as the company charts into uncertain future.

International steel magnate Usha Martin has been in business manufacturing wire rope since the opening of a dedicated unit in 1961. The company produces the world’s widest range of the material, from manufacturing facilities located across the UK, India, the UAE, and Thailand. The company had traditionally used a dedicated steel producer to guarantee the quality of the metals used in its wire, however in recent years Usha Martin has found itself in debt, faced with a lower steel price and increased pressure from the wider market, as the extraction industry suffered from lower commodity prices.

Debt levels at the company have reportedly become unmanageable, and a reported loss of Rs 404 crore (a crore is anything over 100 million rupees) during the 2015-16 financial year, saw creditors become so concerned that they utilised a campaign of shareholder activism to oust Prashant Jhawar from the board, bringin G.N. Bajpai to the board as chairman. One of the main creditors, SBI, has an exposure of Rs 900 crore in corporate debt and Rs 290 crore as a short-term loan, and was noted as particularly worried about the future of the company, and its money.

Usha Martin calls in McKinsey & Company

The poor state of the Usha Martin’s finances prompted various possible options to be tabled for its future, with The Royal Bank of Canada called in to look into the possible sale of the company’s profitable wire rope business for Rs 2,500 crore, with the proceeds going to pay off debts and finance the operation of the remaining steel business. Unfortunately, given the current commodity situation around steel prices, this did not pay off.

To support the future of the company, it was recently revealed that various consulting firms, including McKinsey & Company and The Boston Consulting Group were being courted to develop a long-term roadmap. McKinsey was announced as the winner, being handed the task of saving Usha Martin with a one-year contract to explore options for the steel business.

Commenting on the decision, Rohit Nanda, Chief Financial Officer, said, “We are getting McKinsey to help us with operational efficiency and reduction in costs to improve profitability of our steel business.”


UK manufacturing sees orders slow amid Brexit anxiety

11 April 2019

Manufacturing in the UK saw negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months at the start of 2019 which saw continued softening in orders. With uncertainty still hitting the sector ahead of Brexit’s deferred deadline, the industry faces a difficult 2019.

Despite a perpetually changing economic landscape, manufacturing remains a keystone industry in the UK. Optimism in the industry has been riding high in recent years, reflecting the perceived potential of automotive technologies, but last year saw a slight dip in business performance, ahead of what seems set to be a turbulent period for British manufacturing. Ordinarily, the sector might have expected to recover its footing relatively quickly, but with the looming spectre of Brexit making the economy’s future completely uncertain, this has not been the case.

The uncertainties of Brexit have continued to create headaches for companies on both sides of the channel. As contingency planning continues, new analysis from BDO and the Make UK explores how manufacturing – a segment likely to be hard hit by Brexit – has fared in the final quarter of 2018.

Output balance stable

Manufacturing remains a key industry in the UK, generating around 10% of total economic output and supporting around 2.7 million jobs. Yet while the industry has seen a number of years of strong optimism as well as demand, Brexit is set to throw a spanner in the works, with a range of manufacturing companies leaving the UK, or considering it. Indeed, UK manufacturing’s output currently sits at a 15-month low as the industry anticipates a cliff edge Brexit.

In terms of growth for various parts of the UK economy, a slowdown was noted in the final quarter of 2018 compared to Q4 2017. Manufacturing, in particular, saw growth declines coming in at almost -1%, with a similar trend in production. Construction saw a sharp contraction, falling 2 percentage points to below 0% growth in December 2018. Only services managed to have positive % growth in the final quarter. The final quarter as a whole saw growth of 0.2% in the UK economy – the lowest level in six years.

Output across most sectors in the industry remains positive, with the percentage balance of change in output at 22%. The result is the tension quarter of positive percentage balance of change, with stagnation on the final quarter of 2018. The firm is projecting a slight softening of output going into Q2 2019. The firm notes that there is some stockpiling taking place, with orders and outputs unaligned going into 2019.

Order balance remains positive but dips further

While there is a broadly positive picture for output, the firm does note considerable differences between subsectors. Basic metals for instance, saw a net 24% fall to -18% over the past three months. Metal production is also seeing relatively poor performance as demand from the automotive industry enters a period of acute uncertainty. However, most industries are to see improved output on balance, with rubber & plastic increasing from a net 11% to net 56%.

Export trade

Having been buoyed by the lowered value of the pound, UK export orders are up slightly on the previous quarter, but remain well below the most recent peak in Q3 2018. Domestic orders were relatively strong, with a year between the most recent peaks for the segment. However, Q2 2019 looks to see domestic orders fall sharply, to half Q1’s result, while export orders too are set to see declines.

The decline reflects a decrease in basic metals, possibly a reflection of changes affecting the auto industry. Meanwhile, export orders are down due to Brexit cross-border uncertainty – the effect of the sterling devaluation unable to continue to buoy the market. Basic metals and metal products are both in negative territory for the coming three months.

Investment and employment intentions

UK employment figures reached new milestones, with total unemployment down to 3.9% while participation rates hit record highs. Employment planning continues to be in net positive territory, with a net positive balance of 22% in Q1 2019. The coming months are projected to see a slight dip, again, largely resultant from uncertainties around Brexit. Basic metals is the sector most likely to see a negative trend, reflecting the expected decline in orders.

Investment intentions meanwhile continue to be in positive territory. However, again, the now acute uncertainty about Brexit – the UK government has boxed itself into a corner – mean that confidence around investment could wane rapidly.

Commenting on the wider economy, Peter Hemington, a Partner at BDO, said, “Manufacturing firms have been ramping up their preparations for a disorderly Brexit, in large part through the stockpiling of imported goods. This has had the effect of inflating activity levels… It’s too late to do anything about this now.  But a disorderly Brexit would be far worse than the current relatively mild slowdown, possibly disastrously so… We are concerned it looks more likely than ever that we will exit the EU without a deal.”