The proposed acquisition of Usha Martin's steel business by Tata Steel is credit positive, Moody's Investors Service said Tuesday.
The proposed acquisition of Usha Martin’s steel business by Tata Steel is credit positive, Moody’s Investors Service said Tuesday. The domestic steel giant had announced Saturday that it has executed definitive agreements to acquire steel business of Usha Martin. “The proposed acquisition is credit positive for Tata Steel because it will help the company to strengthen its overall business and expand its presence in eastern India. The deal will have no immediate ratings effect,” Moody’s Investors Service said in a statement.
Usha Martin’s steel business comprises a one million tonne per annum (MTPA) steel manufacturing capacity at Jamshedpur, an operating iron ore mine, a coal mine under development and captive power plants. The transaction remains subject to various regulatory approvals and is likely to close over the next six to nine months.
The acquisition of Usha Martin’s steel business, once completed, will strengthen Tata Steel’s business profile because it will help Tata Steel to further solidify its geographical footprint in eastern India with its current manufacturing plants located in the same region as Usha Martin’s facility, the statement said.
In addition, the acquisition will also help Tata Steel to further widen its long products offering and increase the proportion of value-added goods in its product mix. Moreover, the captive raw material sourcing at Usha Martin’s steel operations will supplement Tata Steel’s existing business, which is also vertically integrated, thus alleviating any concerns about the sourcing as it continues to expand its production capacity both organically and inorganically.
Moody’s further said that it “expects strong demand fundamentals in India and lack of incremental new capacity to result in market share gains for Tata Steel. Tata Steel’s announcement to acquire Usha Martin’s steel business, which will subsequently be rebranded under the Tata Group, will help the company to increase its domestic shipments, thereby enabling it to capture a larger share of the domestic demand and increase its domestic market share”. Steel demand in India is likely to remain robust and continue to grow in mid-single digit supported by strong consumption in the infrastructure, automobile and capital goods segment, it added.