Chink In Tata Steel's Armour: European Operations Come At Heavy Cost

Tata Steel Ltd. has consistently underperformed its closest peer, JSW Steel Ltd. Over one year, the Tata steelmaker's shares have fallen 8%, while JSW Steel's stock has risen 19%. Over 10 years, Tata Steel gained 144%, compared to JSW Steel's 749%.One of the key reasons is Tata Steel's struggling European operations, acquired as Corus in fiscal 2008. Tata Steel Europe Ltd. has yielded only Rs 2,090.45 crore in aggregate net profit from FY09 to FY24. Despite this, Tata Steel continues to invest heavily in the European arm, including a $2.9 billion infusion into Tata Steel Pte, the holding company of Tata Steel Europe, in FY25 so far. The exact end use of these funds, however, is unknown..Tata Steel Acquires Shares Worth Rs 10,727 Crore In T Steel Holdings.As per data gathered from analysts, Tata Steel's initial equity infusion or acquisition of Corus led to a cash outflow of Rs 30,200 crore in 2008. From 2009-2012, the company infused additional equity. Over 2013-2023, Tata Steel India infused a total of $19.3 billion (roughly Rs 1.68 lakh crore as per Wednesday's rate) into Tata Steel Pte, the holding company of Tata Steel Europe. The company has infused $2.9 billion into the holding company in FY25 so far, in five tranches. It is to be noted that approved infusion in May 2024 stood at $2.1 billion in FY25. While the exact bifurcation is yet to be clarified, management had previously indicated that out of the $2.1 billion infusion, $600 million will be used for funding loss at Tata Steel UK, and $1.5 billion will be used towards loan repayment at Tata Steel UK, Acquisition Bridge Joint Arrangement and Singapore entities..Clarification On Group StructureTata Steel India invests in Tata Steel Europe via a two-tiered subsidiary structure. Funds flow from its subsidiary Tata Steel Holding Pte to T S Global Holding Pte, the direct parent of Tata Steel Europe..Steel Demand To Grow Despite Current Global Geopolitical Scenario: Tata Sons Chairman.Despite the heavy investments made into the European operations, the result on the books has not been great. As per data gathered by NDTV Profit from Tata Steel's annual reports, Tata Steel Europe reported a total loss of Rs 26,648.67 crore between financial year 2009 and 2024. If one balances out the losses with the profits, the arm's net profits aggregates to just Rs 2,090.45 crore.The story does not look rosy on the balance sheet and cash flow statements either. Over 2013-2023, Tata Steel Europe's aggregate cash flow from operations activities' stood at negative 130 million pounds. This indicates the company is spending more cash on its core business operations than it is generating.As of FY24, Tata Steel Europe's reserves and surplus stood at negative Rs 43,430.51 crore. This means that the company has accumulated losses that exceed its retained earnings..US Tariffs: Tata Steel MD Wants Safeguard Duties On Imports To Protect Domestic Industry.Tata's Corus acquisition did not work for a number of reasons. The high costs for maintaining ageing blast furnaces, while operating costs became high, was a primary factor. But that was just the tip of the iceberg.The 2008 global financial crisis devastated the steel industry, with a decline in demand and prices, which weighed the European operations' profitability. Simultaneously, governments tightened liquidity, making financing difficult, further burdening Tata Steel's already high debt from the initial acquisition..Factors like China dumping cheap steel on other countries, including European markets, as well as UK's exports to other EU nations after its exit from the European Union made the demand for UK steel plummet.Tata's Port Talbot plant in the UK being the biggest carbon dioxide emitter led to the company shutting shop due to the country's zero carbon emission goal by 2050..Trump's Steel Tariffs Make A Case For Safeguard Duties In India.The closure of Tata's Port Talbot plant in the UK meant laying off 4,000 people, or 10% of the city's population. This led to the idea of turning the blast furnace into electric arc furnaces, which would help employment in the long term. This project was estimated to cost 1.25 billion euros. Of this, the UK government as agreed to put in 500 million euros. But the rest will still have to be funded by Tata Steel. The company's primary goal in the Netherlands is also decarbonisation. As per reports, it is in talks with the Dutch government regarding a transition to low-carbon steelmaking. The plan would be similar to that in the UK — setting up Direct Reduced Iron plants and Electric Arc Furnaces. But updates on this plan are awaited. So are details on Tata Steel's funding onus. .Stock Market Today: Nifty Snaps Longest Losing Streak In 29 Years; Sensex Closes Over 73,700

Chink In Tata Steel's Armour: European Operations Come At Heavy Cost

Tata Steel keeps investing in its European operations even as the arm has yielded only Rs 2,090.45 crore in aggregate net profit from FY09 to FY24.

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