Inability to Find a Quick Buyer May Make Tata Steel’s UK Exit Difficult
Unprofitable assets, high labour costs make sale tough: Macquarie
Mumbai: Tata Steel’s decision to sell its UK business has driven the stock of late, but those tracking the stock believe finding a buyer for its European operations in a swift manner may be difficult. Unprofitability of assets, the China factor, huge pension liability and high labour, regulatory and energy costs are some of the aspects that research firm Macquarie has cited for maintaining an underperform rating on the stock.
Tata Steel shot up by over 6% on Wednesday as the UK’s business minister Sajid Javid air-dashed to Mumbai to meet Tata Group chief Cyrus Mistry for discussing the contours of the sale process. The stock, however, retreated 1.37% on Thursday at ₹ 323.95 on the BSE as reports emerged that Tatas may go for an immediate sale of business only if a buyer emerged for entire assets at one go.
Macquarie has a 12-month price target of ₹ 129 on Tata Steel.
“The stock has run up sharply and we think it is factoring in all the best
possibilities, leaving it open to downside risks,” Macquarie analysts Sumangal Nevatia and Rakesh Arora wrote in a report. “The market is enthused by the possibility of the exit of Tata Steel from UK’s un- profitable assets. However finding a buyer is unlikely to be very easy. Mothballing could entail very high costs given strict labour laws.”
Indian-origin businessman Sanjeev Gupta of Liberty Group has expressed an interest in acquiring Tata Steel’s Port Talbot plant in South Wales.
“SteelmakingintheUKunderthe currentspreadof steelandrawmaterialmakesnosensetousatall.New buyershavestruggled,aswesawinthe caseof theTeesidefacilityof Tata SteelwhichwasacquiredbySSIof Thailandthreeyearsbackandnowfinallyhashadtobemothballed.More evidencecanbeseenintheprolonged discussionsTataSteelhasbeenhaving withGreybullforthesaleof itslong steeldivision.Alreadytwoyearshave gonebyandnosolutionisinsightas yet.PortTalbothaslittlefutureforits blastfurnacesandwillhavetobeultimatelyshutdown,”thereportsaid.