Mahindra Ugine Steel Company Ltd (Musco) has struck a deal to sell 49 per cent of its steel business to Japan’s Sanyo and Mitsui for a total consideration of Rs 187 crore, valuing the business at Rs 381 crore ($76 million) or over two times the market cap of Musco.

In a two-tiered transaction, Musco will first sell its steel business to a wholly owned subsidiary. It will then sell 29 per cent of the subsidiary to Sanyo Special Steel Co Ltd for Rs 111 crore and 20 per cent stake to Mitsui & Co Ltd for Rs 76 crore, thus making it a majority-owned JV company for Musco.

In mid-day trades on the BSE, Musco scrip was quoting at around Rs 58, almost unchanged from the previous day’s close in a weak Mumbai market.

Musco is expected to drive general management while Sanyo will lead the manufacturing function and Mitsui will support the marketing function of the joint venture, according to a company statement.

Sanyo’s technical assistance will enable the venture to strengthen and differentiate its product portfolio with the introduction of new products for niche and emerging market segments in India – namely, oil & gas, power and engineering industries. Mitsui will help the company strengthen its sales and marketing footprints in the niche and emerging segments, as well as in the existing alloy steel market in India.

Incorporated in 1962, Musco manufactures and sells alloy steel & ring rolling products, as well as pressed sheet metal components and assemblies, primarily in India. The majority-owned subsidiary of Mahindra & Mahindra largely caters to automotive, engineering and bearing industries. The company is based in Mumbai.

For the year ended March 31, 2011, Musco recorded revenues of Rs 1,340 crore with net loss of Rs 6 crore. One of the main reasons for Musco’s poor bottom-line is its high debt cost.

Japanese Majors Scaling Up Exposure To Indian Steel Biz

This deal follows a string of transactions involving Japanese industrial majors picking an exposure to Indian steel and steel-related products companies. Last year, Japan’s second largest steel-maker JFE struck a deal to buy around 14.99 per cent stake in JSW Steel for about $1.02 billion in what was pegged as one of the biggest foreign direct investment deals in metal and mining space till date.

More recently, JSW Steel also announced a joint venture with Japan’s Marubeni Itochu Steel Inc., Tokyo, (MISI) to set up a steel processing centre in north India, under the name of JSW MI Steel Service Centre Pvt Ltd.

Last month, JSW said that it would hold 50 per cent of the equity and the remaining 50 per cent would be held by MISI. The project will absorb Rs 122 crore in capital, half of which will be funded through equity (equally from both partners) and the rest through debt raised from banks.

The first phase of the project is expected to come on stream in FY2013 with an initial installed capacity of 180,000 tonnes per annum. The JV will be equipped to process flat steel products such as hot-rolled, cold-rolled and coated products, with a view to offer timely solutions to the automotive, white goods, construction and other value-added segments, according to a company statement.

Japan’s Sumitomo also announced a deal last year to acquire 5.88 per cent stake in Steel Strips Wheels Ltd for Rs 44.2 crore.

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