Tata Steel Long Products has won the bid to acquire Neelachal Ispat Nigam Ltd (NINL) for around Rs 12,100 crore at a time when the steel sector is going through an upturn.
NINL’s capacity of 1.1 million tonnes can be increased up to 3.5 million tonnes, industry experts said.
Also, its plant is close to Tata Steel’s facilities.
“The existing land can be expanded up to 3-3.5 million tonnes. However, a lot of work is needed in terms of modernisation,” said a top executive from a steelmaker that also participated in the bidding for the state-run company.
According to several analysts ET spoke to, the deal looked expensive.
“We totally agree that the asset is a great addition to Tata Steel; however, this is a very aggressive bid and quite expensive for 1 million tonnes,” said an analyst, requesting anonymity.
An executive at a rival steelmaker said they had estimated the price to be around $1 billion (about Rs 7,500 crore).
“The asset is very attractive and sits well for Tata Steel. We knew Tata Steel will be bidding aggressively for this,” this executive said.
Analysts said advantages of the asset, such as its proximity to Tata Steel’s existing Kalinganagar infrastructure and the scope to expand its plant and mines, would have led Tata to make the aggressive bid.
“While NINL as an asset needs improvement, the iron ore assets are attractive given the high premiums at which iron ore assets are sold today,” said an analyst. The uptrend in the steel industry also augurs well for such acquisition, he added.
India’s benchmark HRC (hot-rolled coil) steel prices recorded an all-time high at Rs 70,875 a tonne in November last year. India Ratings expects long products demand growth to be sharp, supported by a demand push from government-led infrastructure investments in affordable housing, railways, rural electrification and road networks.
NINL is a joint venture of four central public sector companies — MMTC, NMDC, BHEL and MECON — and Odisha government entities OMC and IPICOL.
NINL’s plant has been shut since March 2020. It had a negative net worth of Rs 3,487 crore and accumulated losses of Rs 4,228 crore as on March 31, 2021. Its debt and other liabilities totalled more than Rs 6,600 crore at the end of last fiscal year.
On Monday, the government said it has approved the bid of Tata Steel Long Products to purchase NINL. A letter of intent is being issued to the Tata Steel subsidiary, inviting it to sign a share purchase agreement. At this stage, 10% of the bid amount should be paid into an escrow account.
In FY 2019-20, Tata Steel Long Products acquired the steel business of Usha Martin, which had a specialised 1-million-tonne alloy-based manufacturing capacity in long products, at Jamshedpur.
Tata Steel Long Products posted a net profit of Rs 572 crore on a turnover of Rs 4,750 crore in fiscal 2021.