Tata Steel To Hike Stake In Tata Sponge And Tin Plate Through Open Offer

Tata Steel, in a move to increase the stake in its two associate firms, has announced an open offer at a premium to the market rate. The declaration is for a voluntary offer to buy up to 17.24 lakh shares in Tata Sponge Iron, an associate firm, at Rs 375 a share, entailing a total outgo of Rs 65.02 crore. And in Tin Plate Company India Ltd, another associate firm, it would acquire 14.65 lakh shares for Rs 60 a share, totalling Rs 87.92 crore.

After the open offer Tata steel will hike its stake in Tata Sponge from 39.74 per cent to 51 per cent and in Tin Plate from 59.44 per cent to 73.44 per cent. The open offer is for a limited number of shares and not for the entire outstanding. The company has not yet announced the date for opening the offer, which will be made public before June 22, 2012. Tata Sponge is mainly into producing sponge iron which is widely used to produce steel.

In the fiscal year 2012 the net sales of the company declined by 7 per cent on a YoY basis to Rs 633 crore while the net profit was down by 25 per cent to Rs 75 crore.  The fiscal year 2012 has not been in the favour of the iron and steel companies. The high raw material cost and lower demand scenario has significantly impacted the performance of the company.

As for Tin Plate Company of India Ltd, it is into the production of tin-coated and tin-free steel sheets in India. It manufactures various grades of electrolytic tin plates, tin-free steel sheets and full hard cold rolled sheets (FHCR) used for metal packaging. On the financial front the company has shown a weak performance over the previous year. The net sales of the company in FY12 has declined by 21 per cent to Rs 627 crore while the net profit is down by 53 per cent on a YoY basis to Rs 16.6 crore. The significant decline in the bottomline was on the back of high power & fuel cost (up by 32 per cent YoY), high interest charges (up by 56 per cent YoY) and high depreciation (up by 32.6 per cent YoY).  

The stock prices of both the companies on the back of the open offer news have jumped significantly today. Tata Sponge is up by 12.30 per cent to Rs 344.25 whereas Tin Plate is up by 17.63 per cent to Rs 55.05. In conclusion, we would advise investors to subscribe to the open offer to avail of short-term benefits but stay away from both the scrips from a long-term point of view.