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MumbaiJan. 31Analysts and industry experts bet on the long-term positives of the Tata Steel-Corus deal. Terming it as a `strategic' move from Tata Steel, the analysts said the wide reach and improved margins for the merged company will consolidate Tata Steel's position in the world markets.

"Given global liquidity and stock market prices, capital has become fairly inexpensive and therefore there is considerable optimism," said Dr Y.V. Reddy, Governor, Reserve Bank of India.

He added: "So far, Indian industry did not have the advantage of scale and domain knowledge as they did not have export-oriented growth. The best and quickest way to acquire domain knowledge and skills through synergy is by acquiring units outside."

`An expensive deal'

Analysts, however, termed the deal expensive.

"The deal is almost 40-50 per cent higher than Mittal-Arcelor deal due to the competition from CSN," said Mr Hitesh Agrawal, metals analyst, Angel Broking.

The wide geographical reach for Tata Steel will emerge as the strongest positive from the acquisition and help it to become the second most diversified steel producing company, said analysts. "The deal will widen Tata Steel's geographical reach to Europe and the US through Corus' presence. Also, Tata Steel has a strong hold in South-East Asia and India, thereby, covering most parts of the world," said Mr Agrawal.

"The consolidated company will benefit from Tata Steel's iron ore and coal reserves and the specialised steel market Corus enjoys in the west. Along with Corus, Tata Steel will have a 40 million tonne capacity in the next five years," said Mr Kshitij Prasad, metal analyst, Anand Rathi.

In the long run, the balance sheet of Tata Steel will improve and margins will consolidate over a period of time, maintained analysts. "Long-term view for Tata Steel is positive. It will provide steel to Corus, which will bring down the cost of production for Corus and improve its margins. This is when the turnaround will happen," said Mr Vishal Chandak, metal analyst, Emkay Shares and Stock Brokers.

Mr Agrawal said the margin improvement for Corus will take place by FY10-11 after Tata Steel ships out around 10 million tonnes of steel to Corus.

Milestone for India Inc

Corporate and industry representatives were elated over the deal.

"Tata's taking over Corus is a milestone for corporate India as the deal was won against a very stiff price war. Earlier acquisitions made by Indian companies did not face any major competition or opposition," said Mr Habil Khorakiwala, President, FICCI.

"Tata Steel's successful bid for Corus Group Plc is a statement of the Indian Industry's coming of age and takes our mergers and acquisition levels to a different paradigm. This is a testimony of the confidence and competence of the Indian Industry," said Mr R. Seshasayee, President, CII.

(This article was published in the Business Line print edition dated February 1, 2007)
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