Quick Take | Exit from South East Asia could prove value accretive for Tata Steel

Tata Steel | Stock price as of January 14, 2020: 498.45 | Stock price as of March 09, 2020: Rs 322.30 | Stock price declined by: -35.34. (Image: PTI)

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26 Aug, 2025 12:21

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Jitendra Kumar Gupta
Moneycontrol Research

Tata Steel is in talks to exit its South East Asia (SEA) operations, which if successful could prove to be a huge step in correcting its faulty capital allocation, leading to several notable benefits.

Among several subsidiaries and businesses that Tata Steel operates globally, the SEA operation is the weakest. During the last reported quarter, it had earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne of Rs 1,736 as against Rs 4,886 in the case of European operation and much lower than the Indian operation’s EBIDTA per tonne of Rs 19,244.

While lower profitability and growth have been matters of concern, in terms of size too, it has little significance. In the current fiscal till December, the SEA operation, which includes several facilities in Singapore, Thailand and Vietnam, produced mere 1.58 million tonne of steel as against total group steel production of 22 million tonne. Even the recently-acquired Bhushan Steel is twice the size in terms of the production and earns EBITDA per tonne of Rs 10,291, about six times higher compared to the SEA operation. This certainly suggests the exit would be earnings-accretive and rationalise the group’s focus.

The other important aspect of this exit would be unlocking of capital. The funds and assets, which are deployed in the South East Asia operation, can be used for more productive assets. In FY18, it generated an EBITDA of Rs 437 crore. Even at about 5-6 times enterprise value to EBITDA, SEA would be worth about Rs 2,200-2,600 crore. SEA contributes close to 8 percent to group sales and makes less than 2 percent contribution to group EBITDA. Exit as higher valuations would essentially mean better returns for the remaining operation.

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