McKinsey to help Usha Martin develop steel business action plan
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.
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.”
