Tata Steel Ltd has proposed the merger of three listed subsidiaries and one listed associate company with itself as part of a major restructuring exercise of the Indian operations, which could potentially result in about Rs 1,000 crore in cost savings.
As part of the plan approved by the board of the parent, two wholly owned subsidiaries operating in the mining sector — Tata Steel Mining Ltd and S&T Mining Ltd — and an unlisted majority-owned company — Indian Steel & Wire Products — will also be merged with Tata Steel India. Tinplate Co Ltd and Tata Metaliks Ltd, two Calcutta-based listed subsidiaries of Tata Steel, will cease to exist as independent entities as and when shareholders, regulators and courts approve the merger plans.
The recast will also involve the merger of Tata Steel Long Products and TRF Ltd — both listed entities. The proposed amalgamations will enhance management efficiency, drive a sharper strategic focus and improve agility across businesses based on the strong parental support from the leadership, Tata Steel said in a statement.
In the past, the parent had proposed reorganising the India footprint into four clusters — long products, mining, downstream and services — to drive scale, synergies and simplification. In a conversation with The Telegraph, Koushik Chatterjee, executive director and CFO of Tata Steel Group, said the cluster approach would now be followed within the company.
“Driving synergies, strategies outside of the legal entities, that too listed, is much more difficult in today’s world. If they are folded within, you can drive them more seamlessly,” Chatterjee said, adding that these businesses will be run as strategic business units within the parent.
According to Tata Steel’s communication to the bourses, the amalgamations will drive synergies through raw material security, centralised procurement, optimisation of inventories, reduced logistics costs and better facility utilisation. There will be further opportunities towards the reduction of overhead and corporate costs on the completion of the merger.
Chatterjee put the net present value of the synergy benefit upward of Rs 1,000 crore. Brokerage firm Edelweiss said the merger would leadto lower iron ore cost to subsidiaries such as TSLP and Tata Metaliks. Following the changes in the mining rules, these companies will have to pay royalties on iron ore they procure from the parent which has captive mines, denting their individual profitability.
The proposed amalgamation is also part of Tata Steel’s continuing journey to simplify the group’s holding structure. Since 2019, Tata Steel has reduced 116 associated entities— 72 subsidiaries have ceased to exist, 20 associates and JV shave been eliminated and24 companies are currently under liquidation. While the company stressed each of the amalgamations will be value accretive, listed subsidiaries underperformed the market.