Greybull buys Tata Steel Scunthorpe business

Tata Steel one of the world’s largest steel makers informed stock exchanges on Monday that it has signed an agreement to sell its Long Products Europe business to the family investment office, Greybull Capital.

The sale is for an undisclosed nominal consideration, which would be in exchange for Greybull Capital taking on the whole of the business including assets and relevant liabilities and securing an appropriate funding package.

The Long Products business deal includes Scunthorpe steel plant, mills in Teesside and Northern France, an engineering workshop in Workington, a design consultancy in York, a bulk terminal, and associated distribution facilities.

Last month Tata steel started the process for the sale of entire UK business to stem the heavy losses. 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.

On financial front, Tata Steel Europe has not been able to harvest 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 stands at 28039 crores compared to Rs 33633 crores in Q3FY15, a decrease of 16.63 per cent year on year (YoY). EBITDA stands at Rs 776 crores this quarter compared to Rs 3077 crores for the same period last year, a decrease of 74.79 per cent YoY. EBITDA margin stands at 2.77 per cent this quarter compared to 9.15 per cent in Q3FY15. The substantial decrease in EBITDA is attributed to 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 6.28 compared to industry P/E of 7.86. The stock of company is trading at Rs 326.65, a decrease of 1.36 per cent from previous close.