Tata Steel Europe is currently pursuing the pension restructuring programme in the UK and is hopeful of concluding it soon, N Chandrasekaran, chairman Tata Steel has observed in the company’s annual report for 2016-17.
On Tuesday, the shares of the steel maker hit a fresh 52-week high of Rs 568. This is the second time in the last seven days that the stock has touched 52-week highs.
The annual report notes that after prolonged and intense negotiations and discussions with the BSPS trustees, the Pensions Regulator and the Pension Protection Fund, the key commercial terms of a Regulated Apportionment Arrangement were agreed upon, in principle, between TS UK and the BSPS Trustees.
Analysts have pointed out that with the steelco close to an agreement with TS UK Pension Trustee for a separation of its UK pension scheme, the key hurdle to a potential joint venture between Tata Steel and Thyssen Krupp appears to be nearing resolution. Thanks to rising steel prices, the company has reported improvements in its free cash flows (FCF) for the last two years. Analysts at Credit Suisse observed the free cash generation in FY16 was marginally positive while in FY17 it was Rs 2,500 crore, the best in seven years.
Moreover, the company’s net debt has been stable for the last four years, and with improved profitability, the net debt to EBITDA has come down to the levels of around 4X. “The recent sale of a stake in Tata Motors for close to $590 million has further reduced this ratio,” the foreign brokerage said. The company’s net debt at the end of March, 2017 was close to Rs 74,000 crore.
Tata Steel’ consolidated net profit before exceptionals in 2016-17 was Rs 4,020 crore compared to a loss of Rs 1,948 crore in the previous year. Chandrasekaran credits this turnaround to the improved realisations across geographies, ramping up of capacity in Kalinganagar and restructuring initiatives in Europe. “Going forward, Tata Steel’s strategic priorities will be to focus on the Indian market, achieving operational excellence and deliver value-added and differentiated products to its customers,” he said.
Analysts at Jefferies wrote recently that while a potential JV between Tata and Thyssen could lead to consolidation of the European steel sector, and may also lead to potential synergies, market expectations are already lofty. “Synergy benefits may disappoint vs. lofty expectations. While markets appear to be factoring the synergies upfront, realisation could take 2-3 years. We believe the valuation upsides may be limited by the pension settlement related hit,” they wrote.