News Analysis

Tata Steel Europe, Thyssenkrupp AG merger: A positive for Tata Steel shareholders

Satya Sontanam BL Research Bureau | Updated on January 10, 2018 Published on September 20, 2017

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Tata Steel’s shareholders stand to benefit from the merger of the flat steel businesses of Tata Steel Europe and Thyssenkrupp AG. The contribution from Tata Steel’s European operations to Tata Steel’s consolidated business is likely to improve going ahead.

The stock of Tata Steel has rallied around 10 per cent over the past month.

The merged entity is expected to contribute about ₹57,500 crore to Tata Steel’s consolidated financials. For FY17, Tata Steel Europe as a whole contributed ₹52,085 crore to the topline of the consolidated entity.

Similarly, EBITDA of the merged entity is assessed at €1,565 million per annum or ₹11,960 crore, which will translate to a contribution of ₹5,980 crore to Tata Steel’s consolidated EBITDA. Tata Steel Europe’s EBITDA in FY17 was ₹4,705 crore.

The EBITDA margin of the merged entity, at 9.8 per cent, is higher than the 9 per cent margin recorded by Tata Steel Europe in FY 2017, but is far lower than the 22 per cent EBITDA margin recorded by Tata Steel India in FY17.

In recent years, Tata Steel Europe (TSE) had been hit by weak global conditions, competition in Europe and cheap imports from China, making net margins negative. TSE contributed nearly 45 per cent of the consolidated revenue in FY17, but the net loss dragged the consolidated entity’s PAT to negative ₹304 crore.

Tata Steel Europe has been involved in many restructuring activities in recent times. With improved operational performance and favourable conditions, TSE’s average revenue per tonne rose 20 per cent last fiscal. As debt of €2.5 billion moves out of Tata Steel’s books, the deleveraging will improve its prospects too.

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Published on September 20, 2017
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