Shares of these steel companies are far from their 52-week highs. Weak demand and falling steel prices have hit investor sentiment hard
Tata Steel Ltd said Friday it will merge with six of its own subsidiaries and an associate. These include listed companies such as Tata Steel Long Products Limited (TSLP), Tinplate Corporation of India (TCIL), Tata Metals Limited (TML) and TRF Limited.
For every 10 shares of TSLP, Tata Steel will allocate 67 shares (67:10) to TSLP shareholders. Similarly, the combined ratios of TCIL, TML, and TRF are 33:10, 79:10, and 17:10, respectively.
This proposal is in line with Tata Steel’s strategy to simplify the group’s structure. The merger will create synergies in logistics, procurement, strategy and expansion projects.
However, Edelweiss Securities does not see much of an impact on Tata Steel shares in the near term as diluted earnings will come from increased Ebitda (earnings before interest, taxes, depreciation and amortization) from subsidiaries/cost savings. “However, there may be some lull in the subsidiary as the share price appears to have outperformed what the swap ratio suggests,” the note said.
Tata Steel shares rose just 1.5% on the National Stock Exchange on Friday, while shares in TSLP, TCIL and TML fell 3-9%. The Nifty 50 is down about 1%.
In any case, these steel stocks are far from their 52-week highs. Weak demand for metal and falling steel prices have strongly influenced investor sentiment.
But some respite seems to be on the horizon. Domestic hot rolled coil (HRC) prices in the traders’ market rose 1% m/m to Rs 500/t in line with mid-September price increases by AM/NS India, JSW Steel Ltd and Tata Steel. This is stated in the message of Edelweiss Securities dated September 22. AM/NS is a joint venture between ArcelorMittal and Nippon Steel. This is the first time that key companies have raised prices for hot-rolled steel after the government imposed export duties on metals.
In addition, the reduction in production by steel companies also led to significant inventories. This is where demand growth is crucial. The upcoming seasonally strong FY 2023 semester bodes well.
Of course, domestic prices for hot rolled coils are still higher than CIF prices imported from China and the Far East. Therefore, domestic metallurgical enterprises face the risk of increasing imports.
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