Tata Steel may bid for Salem. Is it a logical move? - Views on News from Equitymaster

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  • Mar 29, 2000 - Tata Steel may bid for Salem. Is it a logical move?

Tata Steel may bid for Salem. Is it a logical move?

Mar 29, 2000

According to newspaper reports, Tata Steel is in talks with Usinor of France to jointly bid for Steel Authority of India's Salem Steel Plant (SSP). Tisco (FY99 Net Sales Rs 62,746 m), a part of the Tata Group, is India's largest integrated private sector steel producer.

If Tata Steel were to bid for the company, it would be a logical move for several reasons. First, Tisco is operating close to its capacity levels. The only new project that is underway is the cold roll mill, which is expected to go on stream shortly. Therefore a move to acquire SSP would add to growth prospects in the future. Also, as SSP manufactures stainless steel (a value added product), Tisco's product profile would shift in favour of value added products.

Other advantages pertain to the fact that SSP (which manufactures stainless steel) could source its steel requirements from Tisco itself. The two companies would benefit from the synergies that exist between their operations.

There are several concerns that may override all these benefits. One is a large labour base, a problem that Tisco itself is grappling with. Then there is uncertainty regarding the degree of interference of the government in the running of the organisation post change of management.

Therefore although the move may seem logical, there are several key issues that may dramatically affect the viability of the proposal.

Market View:
Analysts have rate the stock as a ‘BUY’ on account of its attractive valuations and a pick up in demand for steel in line with the growth in the economy.

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