Tata Steel merger: Tata group mergers to help with cost saving; swap ratio fair to shareholders: Amit Dixit

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“Only coking coal/coal has been procured centrally, rest all the procurement is done by the individual business units. With this merger, the procurement cost could come meaningfully down, logistics cost, warehousing utilisation and iron ore assets can be balanced throughout their lifespan,” says Amit Dixit, Director, Edelweiss Securities


What are you making of this mega entity which is going to get created by the merger of the Tata metal and mining companies and the assets it is going to have post amalgamation?
First of all this is not something very new. has been articulating it quite meaningfully in their annual reports over the last two to three years. In fact, the management in every investor call or whatever interaction they have had with us, has been highlighting a simplification of the group structure and basically merging the subsidiaries, so that things can be streamlined.

There are three clear advantages at this juncture. One, after the change in MMDR, there was some element of royalty that

, had to pay. Now with the merger, I do not think that royalty will be required. For record, this royalty was to the extent of Rs 392 crore in FY22 for Tata Steel Long Products. So, that is a clear cut cost advantage.

Two, Tata Steel has been on a roadmap to build a very meaningful long portfolio and the acquisition of NINL and endeavours around that are a manifestation in that direction. With Tata Steel Long Products coming in the ambit of Tata Steel, their long products would get one strategic direction.

Three, the synergies in procurement. If we look at raw material, only coking coal/coal has been procured centrally, rest all the procurement is done by the individual business units. With this merger, the procurement cost could come meaningfully down, logistics cost, warehousing utilisation and iron ore assets can be balanced throughout their lifespan.

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So a lot of cost saving will unfold in line with Tata Steel strategy. It is a positive development for the stock.

What this would mean when it comes to the shareholders of the individual Tata Group subsidiaries like Tata Steel Long Products, Metaliks, , , etc?
They have given the swap ratio. At least we do not cover subsidiaries directly but from the market cap and from whatever public information we have, it appears to be quite fair and in line with the transactions consummated in the past. So I think it is quite fair for the shareholders.



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