Nithia Capital to close Uttam deal by end of October, has identified a new management team: CEO Jai Saraf

MUMBAI: UK-based alternative investment manager Nithia Capital expects to close the acquisition of Uttam Value Steels and Uttam Galva Metallics by the end of October and has identified senior management personnel to run the companies.

“We are making full efforts to close the transaction by the end of this month. Once we close the transaction, our new team will go in,” Jai Saraf, founder of Nithia Capital, said in an interaction with ET. “We have identified senior management personnel and they are ready to go in.”

In May 2019, a lenders’ consortium led by SBI had initiated insolvency proceedings against two distressed entities of Uttam Galva Steels, which were recommended for corrective action by the Reserve Bank of India in its second list of large defaulters. The National Company Law Tribunal (NCLT) then approved the CarVal Investors and Nithia Capital Resources Advisors LLP-led consortium’s resolution plan for acquisition of the assets.

On May 6 this year, a monitoring agency was formed, in which successful resolution applicants Nithia and CarVal along with two members from the bank and one independent member were made responsible for operating the plants.

As per NCLT’s order, Nithia and CarVal were to pay upfront and a contingent payment of ₹1,078 crore for Uttam Value Steels and another ₹1,576 crore for Uttam Metallics.

On the viability of the deal, Saraf, who is also the CEO, said there is a marked improvement in the operating results of the companies.

“After the agency took over, we see there is a considerable change. The production has increased, in spite of the difficulties faced due to Covid, profits of the company have increased and the costs have gone down,” Saraf said.

As per the Bombay Stock Exchange, Uttam Value Steels had posted a net loss of Rs 53 crore during the June quarter of FY 21, as against a loss of Rs 86 crore in the previous quarter.

“Steel plants which have gone into NCLT were not making huge operating losses; the main problem was the level of debt in the balance sheet, which was unsustainable given the operations of the company. Through NCLT processes, these can be brought down to more sustainable levels,” Saraf said.

Uttam Value Steels is an integrated steelmaking company that produces hot rolled coils, cold rolled coils, galvanised coils and sheets and colour-coated products, among other products, with a total capacity of 1 million tonnes.

Uttam Galva Metallics is an unlisted entity that manufactures hot metal/pig iron and has an iron making capacity of 0.60 MTPA at Wardha, Maharashtra. It is a major supplier of hot metal to Uttam Value Steels Ltd.

Nithia, which specialises in turning around stressed assets in various sectors, had also looked at major assets like Essar, Bhushan and Monnet Ispat, before larger steel players started showing interest.

Through acquisitions, Nithia is planning to invest in primary steelmaking capacities in India and then expand the capacities further and finally look for a profitable exit strategy.

“Steelmaking in the western world gives an Ebita margin of 4-8%, as against a double-digit Ebitda margin in most emerging markets like India,” Saraf said. “Our first objective will be to consolidate and turn the plants into a profitable entity. Then our exit strategy is flexible, which could be IPO or a strategic sale, which will be in three years down the line,” he said.