No major change for Tata Steel even as Klesch Group drops out

Company's balance sheet will continue to remain stretched, say analysts

Not much would change for Tata Steel's European operations if the Geneva-based Klesch Group abandoned plans to buy its long-products division in the UK, analysts said.

Though Tata Steel is yet to make any official statement on the issue and calls to the company went unanswered, media reports said Klesch had pulled out of talks because of rising energy prices and cheap imports from China.

Shares of Tata Steel closed at Rs 262 on the Bombay Stock Exchange today, up 2.28 per cent from the previous close.

“Nothing much will change for Tata Steel and the company's balance sheet will continue to remain stretched,” said Abhisar Jain, senior analyst with brokerage firm Centrum.

“The potential sale of the long-products division could have helped in reducing the gearing and made operations leaner, but it was not factored in our estimates. So the outlook for the company on the operational front does not change,” he added.

On March 31, 2015, Tata Steel had a consolidated net debt of Rs 69,000 crore, most of it on account of the European business. Klesch had signed a memorandum of understanding last October with a view to buy Tata Steel's 5.5 million tonnes long-products division that was not doing well in a dull market.

“The division was not very profitable and so we do not see much change in Tata Steel's earnings. The balance sheet will continue to remain stretched,” said an analyst with a foreign brokerage firm.

“The entire steel industry needs help. Tata Steel Europe is doing fairly well and so this deal will not really impact the company,” he added.

The long-products division produces sections, rails, wire rods, special profiles and plates for the railway, energy and construction industries.

“In the current market conditions, if the unit is not making economic sense for the seller, why would it make sense for the buyer?” wondered an analyst with brokerage firm Motilal Oswal Securities.

Tata Steel's Europe operations saw earnings before interest, tax, depreciation and amortisation improve nearly 40 per cent, year on year, in 2014-15. Lower costs and higher sales of value-added products propped up earnings.