Tata Group merges 7 companies with Tata Steel

NEW DELHI: In its effort to synergise its metal business, Tata Steel is merging with itself six of its subsidiaries and an associate company. These include listed entities such as Tata Steel Long Products Ltd (TSLP), The Tinplate Company of India Ltd (TCIL), Tata Metaliks Ltd (TML) and TRF Ltd. 

The merger of 7 subsidiaries includes 4 listed and 3 unlisted firms. As per Tata Steel, this scheme is in line with the its strategy of simplifying the group structure and this would enable synergies in logistics, procurement, strategy and expansion projects.

Tata Steel also says it will create additional value for shareholders. “The proposed amalgamation will provide an opportunity for cut in operational costs through transfer of intermediary products between firms, better order loads, synergies from sales and production planning across the business,” the company said in an exchange filing.

Analysts tracking the sector also welcomed the development with some saying it may result in annual savings of Rs 800 crore.  “Merger is a positive step as it will simply the corporate structure, plug leakage of addition royalty payments on inter-company iron ore transfers, cut corporate overheads, enable various businesses with higher financial flexibility to progress on growth projects and bring in further operational, procurement and tax synergies,” said Jatin Damania, vice-president - Fundamental Research, Kotak Securities Ltd.

He added, “While we await company guidance on potential synergies, we estimate Rs 750-800 crore annual savings, equity dilution of 2.2% and potential EPS accretion of 1.5-2%. The scheme will require various regulatory and shareholder approval and is likely to complete by the end of FY2024E.”

Edelweiss Securities in its note said that it does not see much impact on the Tata Steel stock in the short term as dilution will be compensated by incremental Ebitda (earnings before interest, tax, depreciation and amortization) from subsidiaries/cost savings.