Tata Steel sees cost savings worth Rs 1,500 Crore from merger of subsidiaries

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Tata Steel is looking to save up to Rs 1,500 crore with the merger of all its subsidiaries, which were already part of its consolidated entity. Among the cost savings will be Rs 700 crore to Rs 800 crore in annual fees, which will also be part of the synergies.

Tata Steel Executive Director and Chief Financial Officer Koushik Chatterjee said CNBCTV-18 that this decision brings supply, technological, financial and operational synergies to Tata Steel. He further added that it made sense to integrate the subsidiaries with strategic relevance after the company completed the integration of Bhushan Steel.

“All of these companies have a great future ahead,” he said, adding that the move will bring further simplification to Tata Steel’s operating structure.

The move will be accretive to Tata Steel’s standalone business, the amount of which, Chatterjee said, would be disclosed when the company’s September quarter results are reviewed.

The transaction is considered a related party transaction, for which the Securities and Exchange Board of India (SEBI) issued revised guidelines which came into effect on April 1 this year. Under the new rules, companies will have to provide an explanatory statement to their shareholders in the notice of related party transactions (RPT). In addition, companies will have to comply with the new format specified for reporting PTRs to stock exchanges.

Under the new regulatory framework for TCNs, all transactions will have to be approved by the audit committee as well as by the shareholders of a listed company.

The CFO of one of India’s largest steel producers said the company would have gone ahead with the deal regardless of the guidelines as it was the natural next step after acquiring Bhushan Steel. He also explained how the business structure of Tata Steel Long Products changed after its acquisition of Neelanchal Ispat. “With the acquisition of NINL, the shape of TSLP’s business is very significant, so it made sense for us to integrate all of this into Tata Steel,” he said.

The only Tata Steel subsidiary that has been in focus even before the announcement of the merger is TRF, whose shares were blocked in nine consecutive top circuits before today’s session. The share price doubled between September 13 and 20. Tata Steel’s CFO explained how the company posted a profit in the April to June quarter. “We have also changed TRF’s business model which is more in line with Tata Steel’s engineering and project requirements,” he said.

On the trading side, Chatterjee said things were looking up after June to August were “very bad months”. The situation in Europe has also been stable over the past two months, according to Chatterjee. When asked if the company was planning separate listings of its India and Europe businesses, Tata Steel’s chief financial officer said no such plans were in the works.

Shares of Tata Steel are trading up 1.6% as of 11am at Rs 105.30.

First post: STI

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