Good or bad: Is Greybull Cap deal really helpful for Tata Steel?

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

Moneycontrol Bureau The street is disappointed at Tata Steel’s deal with Greybull Capital as debt and pension liabilities concerns remain. Greybull Capital has signed a deal with Tata Steel to buy its long products business assets in Europe. However, Greybull will only assume some working capital liabilities and there is no transfer of debt, implying that Tata Steel's debt continues to be high. Tata Steel will have to bear pension liabilities 90 million pound for FY16-18.  As of March 2015, Tata Steel has consolidated long term liabilities of over Rs 65000 crore. Analysts feel that Tata Steel’s sale of the loss-making Scunthorpe plant in UK is positive though the fact that the plant was sold for just a nominal value and without transfer of pension liabilities dilutes benefits. Greybull Capital will bring in a package of 400 million pound while the long products business deal includes Scunthorpe steel plant, mills in Teesside and northern France, an engineering workshop in Workington, a design consultancy in York, a bulk terminal, and associated distribution facilities.Credit Suisse believes the sale is positive sentiment-wise as it removes investors' concerns around the UK unit throwing up a big loss in the future. However, it thinks that the impact of other macroeconomic trends (US dollar index peaking, hopes of an improvement in Chinese steel demand, domestic prices post MIP) will likely be more significant for the stock's performance.

CLSA maintains sell rating with a target price of Rs 220 per share. The firm has upgraded FY17-18 EBITDA by 9-17 percent, factoring in the asset sale as well as higher steel prices in India but view valuations at 7x FY18CL EV/EBITDA as expensive. "If minimum import price (MIP) is extended until FY18 and the Port Talbot plant is also sold at USD 50 EV/tonne, then 2018 Ebitda will rise 15 percent and our fair value will rise to Rs 375, implying just 13 percent upside," it states in a report.

Scunthorpe plant accounts for 21 percent of Corus’s sales volumes and is the highest-cost part of Corus, with significant Ebitda losses in FY16-18. The stock has risen 47 percent in the last two months driven by introduction of MIP in India, rising Asian steel prices and Corus asset sale news flow. However, CLSA now sees risk of Asian steel prices heading down in 2HCY16 once re-stocking ends and iron ore prices correct.

Citi is neutral on the stock as visibility on the Port Talbot sale is limited, future pension obligations of Tata Steel are uncertain and is cautious on global steel prices.Deutsche Bank feels that divestment of high-cost, EBITDA loss-making UK assets is a long-term positive and could add 28 percent to its fair value and thinks that a 50 percent stock price recovery over two months already factors in a significant portion of the potential upside. The firm retains hold rating with a target price of Rs 296 per share. Kotak agrees that complete exit from UK (post Port Talbot sale) can reduce cash burn in Europe to a mere USD 200-300 million and improve long-term cash flow visibility. "Our estimates already factor in UK asset sales and remain unchanged. The stock is expensive at 7.3X/6X FY2017/18E EBITDA—given earnings are largely supported by temporary safeguard duty/MIP," it says. Kotak maintains reduce rating with a target price of Rs 250 per share.JP Morgan also feels that overall, this is a strong positive development for Tata Steel to reduce its loss-making exposure. According to the firm, Tata Steel's reported EBITDA should improve by USD 150-250 million as these assets were loss-making, and now sustainable reported earnings shouldbe higher. "Key positive is the permanent reduction of Tata’s EBITDA losses in Europe, as the long product business has been consistently EBITDA loss making. EBITDA losses over FY12-15 in the UK operations have been in the range of 63-224 million pound and this includes Port Talbot operations, which are break-even to slightly EBITDA positive. Hence, Tata by divesting the loss-making Long products business should see reported EBITDA improve by USD 150-250 million at least," it says in a report. Macquarie thinks that the stock is already factoring in most of the positives at the current stock price level. It maintains an underperform rating. It argues that steel making in the UK has very limited potential to be profitable on a sustained basis, and it is good that Tata Steel has recognised the issue. According to the firm Tata Steel (UK) is losing close to USD 60-70 per tonnes at the EBITDA level and an early decision helps cut losses.Shares of Tata Steel slipped 4 percent intraday on Monday. At 12:39 hrs Tata Steel was quoting at Rs 327.45, down Rs 3.70, or 1.12 percent on the BSE.

Follow @NasrinzStory