Proposed acquisition of Usha Martin credit positive for Tata Steel: Moody's
Kolkata: Moody's had said the proposed acquisition of Usha Martin is credit positive for Tata Steel because it will help the company to strengthen its overall business and expand its presence in eastern India.
Usha Martin's steel business comprises a one million tonne per annum steel manufacturing capacity at Jamshedpur, a producing iron ore mine, a coal mine under development and captive power plants. The transaction remains subject to various regulatory approvals and is likely to close over the next six to nine months.
Tata Steel will pay a cash consideration of Rs 4300-4700 crore for the asset, which will be funded through a mix of incremental debt and internal accruals.
"The acquisition of Usha Martin's steel business, once completed, will strengthen Tata Steel's business profile because it will help Tata Steel to further solidify its geographical footprint in eastern India with its current manufacturing plants located in the same region as Usha Martin's facility," the Moody's report said.
In addition, the acquisition will also help Tata Steel to further widen its long products offering and increase the proportion of value-added goods in its product mix. The captive raw material sourcing at Usha Martin's steel operations will supplement Tata Steel's existing business, which is also largely vertically integrated, thus alleviating any concerns about raw material sourcing as it continues to expand its production capacity both organically and inorganically, Moody's said.
"We expect strong demand fundamentals in India and lack of incremental new capacity to result in market share gains for Tata Steel," the global ratings agency said.
"Tata Steel's announcement to acquire Usha Martin's steel business, which will subsequently be rebranded under the “Tata” group, will help the company to increase its domestic shipments, thereby enabling it to capture a larger share of the domestic demand and increase its domestic market share," Moody's said.
Steel demand in India is likely to remain robust and continue to grow in mid-single digits supported by strong consumption in the infrastructure, automobile and capital goods segment, the report said, adding, it does not expect any significant steel capacity to be commissioned in India until 2021.
Usha Martin's steel business comprises a one million tonne per annum steel manufacturing capacity at Jamshedpur, a producing iron ore mine, a coal mine under development and captive power plants. The transaction remains subject to various regulatory approvals and is likely to close over the next six to nine months.
Tata Steel will pay a cash consideration of Rs 4300-4700 crore for the asset, which will be funded through a mix of incremental debt and internal accruals.
"The acquisition of Usha Martin's steel business, once completed, will strengthen Tata Steel's business profile because it will help Tata Steel to further solidify its geographical footprint in eastern India with its current manufacturing plants located in the same region as Usha Martin's facility," the Moody's report said.
In addition, the acquisition will also help Tata Steel to further widen its long products offering and increase the proportion of value-added goods in its product mix. The captive raw material sourcing at Usha Martin's steel operations will supplement Tata Steel's existing business, which is also largely vertically integrated, thus alleviating any concerns about raw material sourcing as it continues to expand its production capacity both organically and inorganically, Moody's said.
"We expect strong demand fundamentals in India and lack of incremental new capacity to result in market share gains for Tata Steel," the global ratings agency said.
"Tata Steel's announcement to acquire Usha Martin's steel business, which will subsequently be rebranded under the “Tata” group, will help the company to increase its domestic shipments, thereby enabling it to capture a larger share of the domestic demand and increase its domestic market share," Moody's said.
Steel demand in India is likely to remain robust and continue to grow in mid-single digits supported by strong consumption in the infrastructure, automobile and capital goods segment, the report said, adding, it does not expect any significant steel capacity to be commissioned in India until 2021.