ArcelorMittal, Uttam Galva embark on next phase of growth

Everyone was caught by surprise when ArcelorMittal, trying to gain a foothold in the growing Indian steel market, bought a 33.8 per cent stake in Uttam Galva, a company whose installed capacity is less than one per cent of the world’s largest steel maker. A year and a half after the deal and co-promotership, nothing much has changed in the fortunes of the Indian company.

However, both companies have started the ball rolling and are set to approve an action plan in two months that would capitalise on strengths of each company.

Ankit Miglani, deputy managing director of Uttam Galva, is upbeat about the partnership, and is eager to learn the fine nuances of the business he is in from his co-promoters. “The focus for the past one year, since ArcelorMittal has joined us, has been to find out our mistakes, the rights we have done, so we can repeat what we have done right and fix what we have done wrong. Last year, all our energies are gone in this. So now, we are in the process of finalising a road map on our expansion, debottlenecking, value addition and cost cutting,” he said.

He said Uttam Galva was working on a proposal that would embark the company on a growth path by taking advantage of ArcelorMittal. The proposal will be cleared by the management of Uttam Galva in two months and then it will go to the management of ArcelorMittal for their approval.

He said the company had set a timeline of 24 months to complete the action plan. Uttam Galva is not looking at any big ticket expansion, but wants to focus on the margin play. According to him, adding products, which could give higher margins, is on the radar and if that means that some new capacities have to be added, there is no shying away from that.

The expansion plans will be conservative. The next phase of expansion will be on how to improve the productivity of the existing unit. “This will be done through value addition and cost reduction. The first step is the power plant which will bring my power cost to half. The next phase is productivity improvement in our existing unit. That we are getting the technical help from ArcelorMittal. Next is value addition. What new equipment could be added to improve the margins from the existing unit? We are not fighting for the volumes, we are in the margins game. I don’t want to make 5 million tonnes of cold-rolled and galvanised steel. I want to make more money in the 1 million tonnes,” he said.

An analyst with a leading domestic brokerage said, “Uttam Galva has not been on the radar of the analysts, as the company has not really excited the market. The Arcelor deal was surely a wake-up call for all of us, however, nothing much has happened after the big announcement. This is disappointing.”

Miglani defended: “My Ebitda (earnings before interest, taxes, depreciation, and amortization) has gone up by at least 30 per cent since the time we joined hands with ArcelorMittal and because of the efficiency levels that have been brought in. We are doing much better than what we were doing a year ago. I am seeing good results in operational efficiencies because of ArcelorMittal’s technical help and you will see it over the next two years. The Ebitda will improve and the PAT (profit after tax) will improve.”

But this is not the only partnership that the two companies are looking at. Last year has seen ArcelorMittal selling its steel in India through the dealer network of Uttam Galva and Uttam has relied on Arcelor’s wide global reach to expand its horizons and sell its products in geographies it wasn’t present in before.

Miglani said, “We are collaborating on marketing. ArcelorMittal has marketing network across the globe. Our entire marketing for Eastern Europe, Russia, Africa, Middle East, Latin America is all through ArcelorMittal exclusively. We have now come under the ArcelorMittal branded umbrella and those products are branded as ‘Uttam Galva (A Joint Venture With ArcelorMittal)’.”

ArcelorMittal India spokesperson said, “Our association with Uttam Galva has been a productive one, with synergies emerging on each side. Uttam has benefited from ArcelorMittal technological excellence and we are expanding our India customer footprint with Uttam Galva’s well established market network.”

The leverage is proving to be fruitful for Uttam Galva and ArcelorMittal both, even in the domestic market. Uttam Galva is taking advantage of its co-promoter’s strengths. In the domestic market, the two are going to the customers offering to import products from ArcelorMittal if Uttam is not able to meet the customers’ requirements.

The company is working on a business plan on how to brand such imported products of Arcelor. “These are case to case imports and we are making a business plan as to how and what branding should be done to these products.”

And, with ArcelorMittal’s unmatched capabilities in the white goods, auto grade steel and commercial grade steel, Uttam is working very closely with Arcelor’s technicians. Last year, Uttam’s sales to the white goods sector in India were 15 per cent of its total production. “Yes, we have added new clients and also new products to the existing clients, which we were not servicing before. We have added clients mostly in the white goods sector. Earlier, we were servicing them in very select categories and small volumes. Now, we are able to do a much wider range because we have got engineering support from ArcelorMittal.”

Before ArcelorMittal came on board, its exposures to these sectors were half of what it is now. However, Uttam Galva claims it has added new clients and products on its own.

Arcelor is helping Uttam to produce more through value addition. The tonnage is the same, but Uttam is making better products with better margins.

Also, Uttam is now buying half of its raw material requirements from ArcelorMittal. This gives the company a consistent supply of high grade steel, which is of utmost importance in maintaining the quality of value-added products that Uttam makes. Just to put the figure in perspective, till four years back, Uttam was buying about 50,000 tonnes steel from Arcelor. “The steel that we are buying from Arcelor is at the market rates. It’s an arms length deal, but we are assured of the quality of the steel which is helping us in making better products with better efficiencies,” Miglani said.

The focus for the company to grow in India is clear cut and defined to the last mile. “Going forward, we aim to build on our combined strength to produce best in class product, while maximising utilisation and efficiency of the existing resources,” ArcelorMittal said.

“Our focus is value-added steel grades because that is Arcelor’s strength. They are the biggest player in white goods, auto steel, value-added steel. Our focus is how can we work together to improve our exposure in the value-added grades in India,” Miglani concluded.