Tata Steel erases post merger gains; slips 7% in two days to hit 2-mth low

Shares of Tata Steel hit a two-month low of Rs 96.55 on slipping 3 per cent on the BSE in Tuesday’s trade. The stock has fallen 7 per cent in the past two trading days.

The scrip has erased all gains that were made after the board of directors of Tata group had approved amalgamation of all metal companies into Tata Steel last week. 

The board, in a meeting held on Friday, September 23, had approved the merger of its seven metal subsidiary companies with its parent metal company Tata Steel. The seven firms that will be merged with Tata Steel are Tata Steel Long Products, The Tinplate Company of India, Tata Metaliks, TRF, The Indian Steel & Wire Products, Tata Steel Mining and S&T Mining Company.

Tata Steel is now trading at its lowest level since the stock turned ex-date for a 1:10 stock split on July 28, 2022.

On May 3, 2022, the board of directors of Tata Steel, had approved the proposal for sub-division of 1 equity share of the company having face value of Rs 10 each into 10 equity shares with face value of Re 1 each to enhance the liquidity in the capital market, to widen shareholder base and to make the shares more affordable to small investors. 

That apart, as the entities merging with Tata Steel are already part of its consolidated accounts, there is no incremental profitability that accrues to the group, other than the elimination of regulatory costs like additional iron ore royalty, Motilal Oswal Financial Services said.

“We also note that any move towards reduction/elimination/calibration of export duty on steel/pellet/iron ore will be positive for the entire industry and stocks will react positively to the news despite the slowdown in the domestic market. Reduction /elimination of export duty will boost steel exports and help reduce inventories, which is the key reason why prices remain subdued in the domestic market. Weak international prices and monsoon are important factors that have driven down domestic steel prices,” the brokerage said in an update with a ‘neutral’ rating on the stock.

Meanwhile, Tata Steel, in its FY22 annual report, said that it will focus on growing its steelmaking capacity in India, adding to its downstream value-added products, strengthening its supply chain through necessary investments in logistics and infrastructure, investments in newer ventures and services & solutions, and defining a de-carbonised future for its Europe business in FY23.

As the company is on a growth path and has large capital requirements, the cost of financing may be adversely affected by the rising rate environment. The company is also exposed to currency volatility given the import requirements, foreign currency debt and offshore operations. Development in climate change regulation and disclosure standards reduces access to capital and increases cost of funding, it added.

However, it said it has been generating strong cashflows on the back of strong operating performance and focused working capital management. It has been aggressively deleveraging over the last few years, which has improved its credit metrics significantly and reduced its vulnerability to financial market volatility and rising interest rates.