The Miglani family recently bought the controlling stake in loss-making Lloyds Steel. Their listed company, Uttam Galva Steels, has the world’s largest steelmaker, ArcelorMittal, as the dormant co-promoter. ArcelorMittal, however, has neither pressed for its two board seats yet nor has taken the joint venture forward in any significant way. Shubhashish spoke to Ankit Miglani, deputy managing director of Uttam Galva Steels, on the company and the role of ArcelorMittal. Edited excerpts:
You recently bought the controlling stake in loss-making Lloyds Steel. What is the strategy behind it?
First, creating land infrastructure, railway, and water pipeline is a nightmare in India. So, we’ve bought steel infrastructure. The Lloyds plant is very efficient up to the melt shop. It is inefficient in the rolling and finishing line because of maintenance issues. Second, the cost of its funds was 25 per cent, as the company was raising money from the secondary market because of its BIFR (Board for Industrial and Financial Reconstruction) issues. Their operating practices are also obsolete.
Do you plan to bring down the interest costs by half?
When I say half, I mean market rates. So, it could be half, it could be 60 per cent or whatever the current prevailing interest rates are based on the existing market situation.
Is Uttam Galva Steels open for acquisitions or expansion?
Expansion is going on in terms of value addition and not capacity. It’s not like there’s no investment in the company. We are investing in it every year, we are increasing equipment but that one million tonne won’t turn into two million tonne. Focus is to improve Ebitda (earnings before interest, taxes, depreciation, and amortisation).
Two acquisitions, Lloyds Steel now and Brahmani Steel last year, have happened through your private unlisted companies. What’s the strategy behind this?
There are two reasons. First, the listed company is a joint venture with ArcelorMittal. Until they want to expand in that sector, we cannot go in through this entity. So, any expansion that we do right now is only on value addition and downstream. The second reason is it is actually a different risk-reward profile. Lloyds Steel and Brahmani Steel are completely different from Uttam Galva Steels. Steelmaking and cold-rolling and galvanising is not the same.
What’s the role of ArcelorMittal in Uttam Galva Steels right now?
They are monitoring the business regularly, so they are in the know of what’s going on. On the raw material side, they give me preference but at market price. If they have an allocation which is available for India, I have the first right of refusal. If I don’t get hot-rolled coil from anywhere else, I can always pick up the phone and say ‘listen, whatever your market price is, give me material from your branch’. That much liberty I have, but at market price. Second is technology support for operation. Basically, the three operations — raw material, operating the plant and selling the product.
They are giving me technology support on the operations, which is improving my product mix, improving quality and throughput, best management practices, etc.
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Then the marketing side. They have officers, basically marketing officers, all over the world. So we’ve picked up certain regions like Eastern Europe, Latin America, entire Africa and the Middle East. We only market through them (in these international markets).
So the past four years after this joint venture, if the joint venture hadn’t happened, the company would have been in a different space, in a different orbit in terms of expansion or revenues?
It is very hard to say..., but if you look at actual performance, the company has made an Ebitda increase of around 40-50 per cent. The actual capacity has not expanded but the value addition has. Our Ebitda has gone from Rs 300 crore to close to Rs 500 crore.
But for four years if the company isn’t showing any capacity increase...
But we are showing Ebitda increase and that is more important. Volume is not important, bottom line is. Focus is not capacity, focus is bottom line.
There are rumours that you will exit the listed company, give control to ArcelorMittal and focus on your unlisted acquisitions...
I have never heard such news. We have no intention of doing anything like that. I have absolutely no problem if ArcelorMittal takes management control, but I will not lose my stake in this company.
But are you fine with giving them management control?
Absolutely. If they could make more money than I can, I’ll be happy.
Have there been any discussion on this front?
Before they joined us, they asked ‘are you happy to work professionally, is there a problem if change management’? I gave them a green chit on everything. If they can come here, make more money than I make, and give me more returns and allow me to do less work, I don’t have a problem.
If you are fine with them having management control, what kind of stake do you see Miglani family continuing with in the business?
I will not dilute my stake at any cost. If they come and invest equity and my 37 per cent drops to, say, 5 per cent of a much bigger company -- I don’t have a problem. I will not consciously sell my equity. The percentage is not important , if the size of the company grows to a large extent and my percentage holding drops, my actual value of shareholding is still increasing.
There is an argument that somewhere down the line you are losing focus from the listed company, because in the past two years we have seen all the action happening in the unlisted space.
The risk-reward (Lloyds Steel and Brahmani Steel) is completely different. Bringing that kind of risk into this (listed company’s) balance sheet is not fair to the shareholders.
Since you are focusing more on building assets outside the listed company, aren’t people saying that you are losing focus towards the investors?
Not at all. We have improved the management structure in listed company. We have got a new CEO, we are focusing on best practices on that, full-scale effort on improving product and that is being reflected in the Ebitda.
