Billionaire Lakshmi N Mittal's entry into Uttam Galva Steels through ArcelorMittal couldn't have been more welltimed for the Indian company.
The steel baron invested in the company as a co-promoter in 2009-10, promising technology and global reach, which have helped Uttam Galva ride through turbulent times when companies are competing fiercely amid contracting demand.
"We get continuous support from ArcelorMittal to improve our product mix and our production parameters. If I was producing today the same product mix that I was producing in 2007, I would be out of business," Deputy Managing Director Ankit Miglani told ET.
The Miglani family-led Uttam Galva has invested more than Rs 1,500 crore in the past five years to upgrade its product mix to meet its changing sales strategy, helped by ArcelorMittal. The company makes more higher margin, value-added and customised products now and has added superior machines at its service centres to help meet customer needs.
Uttam Galva's products include front panels for consumer durables such as refrigerators and washing machines. It sells coloured steel with protective metallic and layers of organic coating and also zinc-coated steel to prevent rusting.
ArcelorMittal, the world's biggest steel maker, helps Mumbai based Uttam Galva across the value chain — procuring hot rolled steel coils, the key raw material, and also marketing its products globally, specifically in Eastern Europe and Latin America. Miglani said ArcelorMittal brought about a cultural shift at Uttam Galva. "It is like having a Rolls-Royce and knowing how to drive it. It isn't the same thing. Once you have a great machine, you need to have a culture required to run it properly and there we are getting a lot of help from Arcelor-Mittal," said Miglani.
India Ratings & Research, which has an 'A-' rating on Uttam Galva, said it expects the company's strong asset quality and its high value-added product portfolio to help maintain its competitive edge and improve realisation and profitability if demand for steel improves.
"It's safe to say that ArcelorMittal is a major contributor to our evolution. The way we have evolved in the past five years, we couldn't have done it without their support and guidance," said Miglani. He said Arcelor-Mittal has no plan to raise its shareholding beyond the current 29.05%.
Uttam Galva, which exports almost 50% of its products, recently opened a marketing office in Dubai to cater to the Middle East and Africa. The company is not too optimistic about demand in India improving for another two years. The local market, which deteriorated in the past six months, is expected to get worse before getting any better, according to Miglani. This does not augur well for the company, as its debt-funded capital expenditure in the absence of demand led to a credit rating downgrade in September.
Its net debt increased to Rs 3,530 crore in 2014 from Rs 3,090 crore a year earlier. Capital expenditure may come down with the company close to commissioning new product lines.
The Indian steel industry is weathering a storm of slacking demand and stubborn raw material prices. "We see a huge liquidity crisis among the customers... auto, construction, white goods, packaging, general engineering. Overall payment cycles of 15 days have got extended to 60 days," said Miglani. Uttam Galva's third-quarter profit fell 33% to Rs 5.5 crore while sales increased 1% to Rs 1,633.36 crore.