Tata Steel to sell of entire UK operations

One of the world’s largest steel makers Tata Steel is considering the sale of entire UK business to stem the heavy losses.

As the global steel demand especially in the developed markets like Europe, has remained muted following the financial crisis of 2008. The financial performance of UK arm of company had deteriorated substantially in last 12 months as trading conditions in the UK and Europe have rapidly deteriorated more recently, due to structural factors including global oversupply of steel, significant increase in third country exports into Europe, high manufacturing costs, continued weakness in domestic market demand in steel and a volatile currency.

Further, these factors are likely to continue into the future and have significantly impacted the long term competition position of the UK operations in spite of several initiatives undertaken by the management and the workers of the business in recent years.

The board also rejected the option of restructuring and came on the conclusion that the plan is unaffordable as the assumptions behind it are inherently risky and looking to evaluate and implement the most feasible option in a time bound manner.

On financial front, Tata Steel Europe has not been able to turn profit since Tata’s takeover of Corus in 2007 for USD 8.1 billion, despite numerous rounds of restructuring, job cuts, asset sales and modernisation. Tata Steel has taken an impairment charge of 2 billion pounds in the last 5 years due to its poorly performing UK business. 

The consolidated net revenue from operation of Tata Steel for Q3FY16 stood at 28039 crores compared to Rs 33633 crores in Q3FY15 a decrease of 16.63 per cent year on year (YoY). EBITDA stood at Rs 776 crores this quarter compared to Rs 3077 crores same period last year a decrease of 74.79 per cent YoY. EBITDA margin stood at 2.77 per cent this quarter compared to 9.15 per cent in Q3FY15. The substantial decrease in EBITDA is on back of fixed employee expenses which increased by 0.24 per cent YoY and slow decrease in other expenses by 6.57 per cent. The company faced a net loss of Rs 2127 crores in Q3FY16 compared to profit of Rs 157 crores in Q3FY15.

On valuation front the stock of company is trading at trailing twelve months P/E of 5.93 compared to industry P/E of 7.36. The stock of company is trading at Rs 306.8 an increase of 0.95 per cent from previous close.