Even as Tata Steel sheds off its European baggage, it is bidding aggressively for assets in India
Tata Steel’s aggressive bid for Anglo-Dutch steel maker Corus Steel, over a decade ago, had surprised industry watchers at the time. Just when Tata Steel thought it had Corus in the bag, Brazil’s CSN Steel gatecrashed the party, and a fierce bidding ensued. Tata Steel eventually won what in hindsight turned out to be a pyrrhic victory.
Investment bankers associated with the negotiations said that the deal had almost become a prestige issue for Ratan Tata, then the Chairman of Tata Sons.
As Tata Steel now bids for distressed steel companies, buzz is that N Chandrasekaran, who completes completes a year as the Chairman of Tata Sons on Wednesday, is the architect of the strategy. The major difference this time around is that the aggression is far more measured, say analysts.
Maintaining a buy on Tata Steel's stock even after it emerged the front runner for Bhushan Steel (with bid of Rs 35,000 crore) and Bhushan Power & Steel (with a bid of about Rs 24,000 crore), Amit Dixit of Edelweiss Research said that the company is unlikely to suffer from the winner's curse.
"We believe, potential acquisition of these stressed assets makes strategic sense for TSL, despite the seemingly expensive valuation," Dixit said in a note. His belief rested on Tata Steel's access to raw materials and possible leadership in the high-margin auto steel segment (Bhushan Steel specialises in the product).
If Tata Steel does manage to bag both the Bhushan companies, its capacity will go up by about 8 million tons to 21 million tons a year. That will reinforce the company as the country's biggest steel maker, a crown that JSW Steel had recently wrested from it.
There is reason to believe that Chandrasekaran is deeply involved in Tata Steel's acquisition strategy. Last year, he had restructured the top deck of the company. TV Narendran, who was appointed the Managing Director for India and South East Asia markets in 2013, was elevated to CEO and MD globally. Narendran now reports directly to Chandrasekaran.
Under Chandrasekaran, Tata Steel has also taken definitive steps to reduce the burden of its European assets.
In September last year, Tata Steel and Germany's Thyssenkrupp agreed to merge their European businesses to create the continent's second largest steelmaker after ArcelorMittal.
Recent reports quoted the German steelmaker as saying that the joint venture will be finalised by early 2018.
As much as Chandrasekaran will be keeping an eye on the developments in Europe, the Tata Sons Chairman would also keep a tab on Indian operations. The Kalinganagar facility, which at present manufactures 3 million tons of steel a year, will flag off the expansion of the next phase in April.
Once done, the company will manufacture 8 million tons of steel in Odisha. The new facility is said to be more cost effective than the one in Jamsedhpur, and the ramp up will help improve margins of the company.Chandrasekaran would want to make sure that the timelines of the expansion are met, given the legacy of the project. The plant in Odisha was first planned in 2005, but work started only in 2010.