Wire Rope Maker Usha Martin Feels Heat of High Fuel Cost

The recent acquisition of the Brinda and Sasai coal block in Jharkhand will ensure availability of fuel to wire rope maker Usha Martin. But on the flipside, the higher cost of fuel will add further pressure on the company’s stretched balance-sheet. The Kolkata-based company posted a loss of nearly ₹26 crore on a turnover of ₹3,287 crore in 2013-14 and is in the red for the last three quarters of this fiscal. The total loss between April and December 2014 is around ₹155 crore. 

Usha Martin clinched the partly developed Brinda and Sasai asset at an aggressive bid of ₹1,804 for every tonne of coal to be produced. The asset is expected to be operational in the next two years. Till then, the company has to survive on open market purchase of the fuel. 

Usha Martin was previously allocated two assets (Kathautia and Lohri) through the now-scraped captive dispensation policy. Of the two, Kathautia was operating. The allocations were cancelled following an apex court ruling in September 2014. According to AK Somani, President (Finance) and Chief Financial Officer of Usha Martin, the cost of sourcing fuel from the newly allocated mine would be 40 per cent higher. The higher cost would have to be “internalised”, he said, indicating likely squeeze in the operating margins. Meanwhile the company is hopeful to tide over the immediate crisis through an estimated net inflow of ₹140 crore as compensation against past investments in coal assets. 

According to Somani, Usha Martin would be eligible for compensation of ₹175 crore for Kathautia mine and ₹15 crore for Lohri. The company is also expected to pay ₹50 crore to the previous allottee of Binda and Sasai.

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