Tata Iron and Steel Company Limited (Tisco) is considering spreading its wings beyond the Indian markets. The company is reported to be in talks with a global steel major to set up a joint venture company abroad to manufacture hot-rolled coils (HRCs).
Tisco (FY99 Net Sales Rs 62,746 m), a part of the Tata Group, is India's largest integrated private sector steel producer.
The Indian steel sector has been witnessed tumultuous times in recent years. This was mainly due to the slowdown in the domestic and export demand. Recently steel companies have seen a rise in demand for steel products. This has, however, not been accompanied by an increase in price realisations as a consequence of which the overall profitability of the sector continues to be under pressure.
The price realisations have been under pressure for some time as cheaper imports are flooding the market. This is despite the floor rates and duties imposed to prevent dumping.
Tata Steel's decision to consider a joint venture abroad will be beneficial to the company in a number of ways. Tisco will be able to hedge its exposure to domestic steel markets by having a presence in various markets around the world. The company, which is operating close to capacity levels already, needs to set up capacities to drive top line growth. This would require large capex the need for which will be significantly reduced in case of a joint venture (as resources will be pooled in). Finally, pairing up with a partner in the international markets may throw up opportunities for more such ventures in the domestic markets. This will enable the company to consolidate its position in the domestic markets.
Certain concerns pertaining to such a project also need to be considered. The most important of these is that the company is unnecessarily spreading thin its resources even as the Indian economy is picking up pace. India has a per capita consumption of steel of around 20 kgs as against 80 kgs in China, 405 kgs in Malaysia and 925 kgs in Korea. Thus, the steel industry has tremendous growth potential. A thinning out of resources may lead to the company missing out on the forthcoming boom in the Indian markets. Another concern pertains to the inexperience in operating in international markets via a joint venture company.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407