Tata Metaliks' exits water pipes JV with Japanese partners Kubota Corp and Metal One

KOLKATA: Tata Metaliks Limited (TML) has ended its joint venture for manufacturing drinking water pipes with Japanese partners, Kubota Corporation and Metal One Corporation. The move is a prelude to a larger plan towards integrating the pipe making facility within TML.


The joint venture, Tata Metaliks Kubota Pipes Limited (TMKPL) was incorporated in July 2007 as a 51% subsidiary of TML, with the Japanese partners Kubota Corp and Metal One holding 44% and 5% share respectively.

"To start with, TML will acquire 100% stake by buying out its Japanese partners in TMKPL. In the next step, the pipe making business will be brought under TML's fold. We continue to see a lot of prospect in the business," said Harsh Jha, managing director of Tata Metaliks, who is due to retire on Friday. "We have separate agreements through which TML will continue to get technical and international marketing support from Kubota Corporation," he added.

While there is an obvious tax advantage in the proposed move,TML board is also discussing a few other options on the fate of TMKPL to get similar tax benefits. This includes making TMKPL a conversion agent of TML. A clearer picture is likely to emerge shortly with the board due to take a call on it in next 3-4 weeks.

"The company signed an agreement with Kubota Corporation, Japan and Metal One Corporation, Japan, March 25, 2013, terminating the joint venture agreement executed July 20, 2007 in relation to Tata Metaliks Kubota Pipes Limited, subsidiary of the company," Tata Metaliks said in its notice to the Bombay Stock Exchange ( BSE).

TMKPL, in which the partners had invested around Rs 185 crore, was affected by severe price competition in ductile iron (DI) pipes and was upstaged by intense price cutting by regional players in the last 4-5 years. Hit bylow net realizations in an industry facing overcapacity, especially in the eastern region, TMKPL's margins suffered.

"At one point price of pig iron and DI pipes were at same level. There was no premium on value addition which is absurd. The DI pipe market is essentially led by projects. There is no concept of marketshare. The situation got worse till it became economically unsustainable for a lot of companies who were operating at very low capacity," an industry analyst said.

"Of late, sanity has been restored somewhat and prices are at Rs 40,000 per tonne, though it is still down 20% from previous levels," Mr Jha added.

Tata Metaliks' main business too has been affected due to irregular supplies of iron ore since the mining crisis broke out in Karnataka and Goa. In particular, it was forced to close down operations at its Redi plant at Sindhudurg, Maharashtra in October 2011. Earlier this week, it signed a memorandum of settlement with the Tata Metaliks Workers' Union at Redi in respect of all permanent employees in pursuance of its plans to close down operation there.

Plans to sell off its Redi plant last year suffered after it failed to clinch a deal with the proposed buyer, Fomento. "We have no interest in the Redi plant and have decided to divest it completely as a going concern," Jha said. TML is now focusing all its energies on its plant in Kharagpur in West Bengal.