Tata Steel - Would be merger be of any value?

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Hi, today morning an announcement came that the Tata group will be merging all its Metal companies into Tata Steel. The companies being merged include :-

  • Tinplate : Shareholders will get 33 shares of Tata Steel for 10 shares of the company.

  • Tata Metaliks : Shareholders will get 79 shares of Tata Steel for 10 shares of the company.

  • Tata Steel long : Shareholders will get 67 shares of Tata Steel for 10 shares of the company.

  • TRF : Shareholders will get 17 shares of Tata Steel for 10 share of the company.

Have pasted the original announcement.
I don’t think the dates have been announced yet.

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Would this merger bring any value unlocking in your opinion?
What would be the major positives & negatives?

The first reaction seems to be downside as most of the companies have opened gap down.

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Which company is best poised to take advantage of the merger ratio?

I beleive TATA METALIKS at 1st look

Others please opine

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Possibilities of merger arbitrage exist. If the share price of one of the smaller cos goes too low, and if you are willing to short 1 lot of Tata Steel and buy the equivalent (post merger) amount of the smaller co, then ideally it should work out. As with other risk arbitrage plays, the real risk is if the merger doesn’t go through. The reverse trade doesn’t work because you can’t trade FnO in any of the smaller cos, so there’s no way to short those.

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What are long term cons and benefits

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Hi all, I hope this thread is also related to tata steel. 4.5% is a nice dividend yield. considering the nature of the company. steel being in upcycle.

What I like about the company?

  • Dividend yield 4.5% is attractive.
  • Synergy with other valued added steel products is just amazing.
  • Raw materials 100% iron ore is sourced inhouse. only coal 50% requirements are imported. (from annual reports)
  • Being associated with the tata family.

What are my expectations?
I am not expecting the stock to be a huge multi-bagger. I expect the stock to be a nice cushion against inflation with the regular increasing dividend flow.

My Questions to fellow trackers of this company,

  1. Are my expectations good? your comments.
  2. As per annual reports I am to understand that all their iron ore requirements are satisfied in-house. in this case how long they will be able to dig up the iron ore? how much is left? how difficult is it to acquire new pits?
  3. since we are in a steel upcycle. how much in percentage it has effects on profits in the down cycle.

Any point you share will be helpful. thanks in advance!

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https://indiainfrahub.com/2022/news/tata-steel-receives-first-all-india-license-to-produce-corten-steel-to-reduce-import-of-shipping-containers-from-china/

Tata Steel will be the India’s first licensed manufacturer for Corten steel (Weathering steel). Corten steel eliminates the need for painting and forms a stable rust-like appearance after several years’ exposure to weather. It is widely used in construction of shipping containers and large structural work such as bridges.

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There is a sureshot/concrete cost savings on iron ore royalty payments of about 500 crores (source: 5paisa), which is ~1.5% of the operating profit of TATASTEEL in FYe21 (not comparing to FYe22 because it seems to have been an exceptionally good year). There might be other synergies and cost savings but in my opinion but those are rather wishy-washy and may or may not pan out.

Disclosure: Was invested in TATASTEEL (~2% of my portfolio) and have gone for the merger arbitrage (by selling my TATASTEEL shares and buying TINPLATE/TATASTLLP).

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I am a long term investor, but these days short term losses have rather messed with appetite.

I request comments from more experienced investors on whether the decline is temporary?

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I see daily newspaper ads on the merger and asking shareholders attention
My point: I feel that cost saving will be the key and holding structure is cleared
For employees, transfers and Departmental issues will be solved.

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Withdrawal of TRF’s merger with Tata Steel has triggered quiet a rally in TRF. I tend to agree with the upmove

My simple thesis on this name:

  1. Withdrawal of merger is a clear indication that the worst is behind - both financially and operationally
  2. A CHP (Coal Handling Plat) manufacturer, it is likely to be a beneficiary of growing thermal power need in the country. TRF is a vendor to BHEL who has been winning significant quantum of thermal power orders. Those should start to reflect in its vendor books as well.
  3. At 14x trailing PER, it is one of the cheapest stock among peer set.
  4. Finally, despite recent run-up, market cap is just INR 530cr. For a Tata Company, that should indicate signicant upside potential.

Happy to hear others’ views.

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A silly doubt - Some one please clarify. There was a stock merger of Tata steel BSL to Tata Steel in the ratio 15:1 , I held 2000nos of Tata Steel BSL , hence 133.33 nos of Tata steel must be received , however i received 133 nos , what will happen to the fraction 0.33nos?

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You might have got an allotment letter/email OR might get one soon about this fractional entitlement.

Usually fractional entitlement shares are clubbed together under a custodian, sold off, and the proceeds distributed among the shareholders based on their fractional entitlement. this might take upto a few months, but contact the company RTA to get exact timelines, etc.

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This information is little off topic however, just wanted to share my understanding and things that is happening with TATA Steel.
After Tata Steel UK initiated legal action against an employee’s union after their announcement on early shutdown of its operations at the Port Talbot facility. This all started when Tata steel planned to shut down its loss-making business by decommissioning two blast furnaces and replace it with Electric Arc furnace project. The Company had also sought support from the UK Government and came to an agreement to invest £500 million.

Now what’s the issue?
Around 2800 jobs will be lost in closure of the blast furnaces. Also, the long-term Steel making sustainability would come to a pause.
Hence, Employee union’s secretary Sharon Graham stated that “We call on the real decision makers in Mumbai to take hold of this dispute, sit down, negotiate, and realise that the investment secured will be good for the company and workers.”

What the Company is doing?
The Company has urged the Union to withdraw its strike that is going to start from July 8, 2024 and consider its proposal which includes “generous” employee support packages, training, and skills development.
In the coming days, if the Company is unable to continue to safely and stably operate the assets through the period of strike action, they will have to pause or stop heavy-end operations (including both blast furnaces) on the Port Talbot site.
The Company has emphasized that shutting down operations would be extremely costly and disruptive throughout the supply chain.
They also stated that safety of people on the site will be their priority.

To Conclude, Tata Steel being one of the largest steel manufacturing Company around the globe, these disruptions would not hamper the long-term goals of the Company. However, if the operations are being paused or stopped for a longer duration it would badly affect the company’s topline growth in the near term.

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Do share your thoughts on above information.

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“Tata Steel may face massive Rs.17,000 Crore Tax Bill from Odisha Govt.”

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In December 2005, Tata Steel had filed a writ petition to the High Court of Odisha to rule out the impose of taxes on minerals. However, the High Court was in the favor of the Company stating that ‘the Odisha Government lacked the authority to impose taxes on minerals.’ This was introduced when the Odisha Government introduced “Orissa Rural Infrastructure and Socio-Economic Development Act, 2004 (ORISED Act)” to levy tax on mineral bearing land.

In the eastern part of the nation, Tata Steel operates 10 mines which includes iron ore mines, chromite mines and manganese mines. The Company’s operations are highly depended on this minerals as they play a crucial role in supplying raw materials.

The Supreme Court bench of nine judges stated that 'the states have the power to impose tax and levy cess on land in which the minerals are extracted from.

Therefore, Tata Steel might need to pay more than Rs.17,000 crore as minerals tax dues to the state of Odisha, if the Supreme Court rules that states can retrospectively impose taxes on mineral extraction.

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Tata Steel’s merger with The Indian Steel & Wire Products Ltd approved.

The National Company Law Tribunal (NCLT) has officially sanctioned the merger of Tata Steel and The Indian Steel & Wire Products Ltd.

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The Domestic Steel Price Plunge

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In the surprising turn of events for the past 3-4 years, domestic steel prices in India have fallen to a 45-month low , despite a strong underlying demand. For a nation like India which has a goal to achieve 300 million tonne per annum (mtpa) steel-making capacity by 2030 , might derail its ambitious goal in the steel industry. Let’s decode what is happening in the sector.

What’s happening?

Over the past few months, steel prices have taken a steep dive, reaching ₹51,200 per tonne in August 2024, down from ₹76,150 per tonne in April 2022. This significant drop comes even as India witnesses strong steel consumption growth , which rose by 13.4% year-on-year in FY23.
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So, what’s driving this decline?

One of the primary reasons behind the price plunge is the growing imbalance between steel imports and exports . In the past, India was a net exporter of steel, which means it exported more steel than it imported. However, in recent times, this trend has reversed. India has now become a net importer of steel, with imports exceeding exports by 0.83 million tonnes (MT) in FY24. In FY24, imports grew 38%, where as exports rose just by 11.5% over FY23.
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The reason behind this is cheaper imports, especially from countries like China and South Korea, have flooded the Indian market. According to steel ministry data, China contributed 30.5% of India’s total imports during the April-June period, compared with 28.4% a year ago. The increase in China’s Steel exports by 24.7% year-on-year for FY24, has resulted in significant drop in export volumes of Indian steel Companies. This has affected the pricing dynamics within the Indian Industry.

Analysts have given three main reasons for the worsening of steel trade balance which are mentioned below

  • Weak global demand mainly due to tightening monetary policies and geopolitical tensions.
  • Low priced imports from steel surplus countries obviously, China.
  • A slowdown in Chinese economy majorly due to the real estate crisis, to which steel is the basic raw material for the real estate sector.

What does the experts say?

TV Narendran, CEO and MD of TATA Steel Ltd ., quoted that “These prices aren’t sustainable. We expect the trend to reverse in the next few weeks.”

“Indian steel prices have fallen to their lowest levels in over three years, largely due to shifts in the global market. A notable slowdown in China’s economy has triggered a correction in global steel prices, with Chinese export prices dropping to a four-year low. This decline has led to a surge in HRC imports from Vietnam and China into India,” said Dhruv Goel, CEO, BigMint.

Domestic firms also allege that the Indian steel sector is in a structural disadvantage due to various taxes, duties and levies. Other exporting countries like China, Japan, Korea, ASEAN, etc. are not prone to these taxes.

Conclusion

India’s journey towards becoming a steel powerhouse is fraught with challenges, but with the right policies and industry support, it’s a journey that can still lead to success. As the country moves forward, balancing the dynamics of steel sector will be crucial in ensuring that its steel sector remains competitive and capable of achieving the ambitious targets set for the coming decade.

Your thoughts and views is highly appreciated.

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Tata Steel Q1 FY2025 Earnings Analysis: Key takeaways!!

Tata Steel faces a challenging global steel demand environment due to subdued economic activity and tight monetary policies. However, the company remains bullish on India as a growth market and is strategically expanding its capacity to leverage this opportunity. The management expects steel demand in India to remain stable, despite some short-term impacts from elections and seasonal factors.

Strategic Initiatives:

  1. Capacity Expansion: Tata Steel is progressing with its Kalinganagar expansion, with the blast furnace startup expected by end of September 2024. This will add 1.7 million tonnes of production capacity.

  2. UK Operations Transition: The company is transitioning its UK operations to a more sustainable model by ceasing blast furnace operations and moving towards electric arc furnace (EAF) technology.

  3. Netherlands Decarbonization: Tata Steel is in discussions with the Dutch government for support on a decarbonization project, which includes replacing a blast furnace with a Direct Reduced Iron (DRI) plant and an EAF.

  4. NINL Expansion: Plans are underway to expand the Neelachal Ispat Nigam Limited (NINL) capacity to 5 million tonnes per annum.

  5. Focus on Value-Added Products: The company is enhancing its downstream capabilities, including a new continuous annealing line and cold rolling mill complex.

Trends and Themes:

  1. Decarbonization: Tata Steel is actively pursuing decarbonization initiatives across its global operations, particularly in Europe.

  2. Digitalization and Automation: The company is leveraging technology to improve operational efficiency and customer engagement.

  3. Shift towards Electric Arc Furnaces: This aligns with the global trend of moving towards more flexible and environmentally friendly steel production methods.

Industry Tailwinds:

  1. Growing steel demand in India
  2. Government focus on infrastructure development
  3. Potential for import substitution in high-end steel products

Industry Headwinds:

  1. Global overcapacity and Chinese exports pressuring steel prices
  2. Rising raw material costs
  3. Stringent environmental regulations increasing compliance costs

Analyst Concerns and Management Response:

  1. Concern: Impact of potential retrospective mineral cess in India
    Response: Management acknowledged the complexity of the issue and is engaging with the government to address industry-wide concerns.

  2. Concern: Funding for European operations decarbonization
    Response: The company is seeking government support and exploring project financing options to minimize the impact on the parent company’s balance sheet.

  3. Concern: Delay in capacity expansion plans
    Response: Management reaffirmed its commitment to the expansion roadmap, with flexibility to pace investments based on market conditions.

Competitive Landscape:
Tata Steel maintains a strong position in the Indian market, particularly in value-added segments like automotive steel. The company faces competition from other major Indian steelmakers and global players, especially in export markets.

Guidance and Outlook:

  • India operations expected to see a reduction in net realizations by Rs. 1,500 per ton in Q2 compared to Q1
  • Netherlands operations projected to have a £60/t reduction in net realizations in Q2
  • UK operations expected to break even or turn slightly positive on EBITDA basis after the closure of the second blast furnace in 2H FY2025

Capital Allocation Strategy:

  • Focus on growth investments in India
  • Decarbonization investments in European operations, largely supported by government grants and internal accruals
  • Continued deleveraging efforts at the consolidated level

Opportunities & Risks:

Opportunities:

  1. Expansion in high-growth Indian market
  2. Potential for value-added product mix improvement
  3. Cost savings from operational efficiencies and decarbonization efforts

Risks:

  1. Global economic slowdown impacting steel demand
  2. Volatility in raw material prices
  3. Regulatory changes affecting mining operations in India

Regulatory Environment:
The recent Supreme Court judgment allowing states to levy cess on mineral rights has created uncertainty in the Indian mining sector. Tata Steel is closely monitoring the situation and engaging with authorities to mitigate potential impacts.

Customer Sentiment:
The company reported strong growth in key segments like automotive (9% YoY) and engineering goods (19% YoY), indicating positive customer sentiment in these sectors.

Top 3 Takeaways:

  1. Tata Steel remains committed to its India growth story, with strategic expansions underway despite global challenges.
  2. The company is making significant progress in transitioning its European operations towards more sustainable production methods.
  3. Management is actively addressing regulatory and cost pressures through operational improvements and strategic initiatives.

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