Brokers give thumbs up to Tatas’ JV with Thyssenkrupp

MUMBAI: Brokerages have given a thumbs up to the joint venture agreement of Tata Steel and Thyssenkrupp AG as it will help remove concerns on the share price of the Indian steel manufacturer.

The deal will also help Tata Steel reduce its debt levels, brokerages said, with most of them maintaining a ‘buy’ rating on the stock.

Tata Steel and Thyssenkrupp have signed a definitive agreement to create a 50:50 joint venture that will combine the German and Indian giants.


Shares of the company rose 3.3 per cent to a high of Rs 586.50 during Monday’s session but gave up gains later to close 1.2 per cent lower at Rs 560.95.

“We view the development as positive for the TATA (Tata Steel) stock, which had been roiled by the recent uncertainties on the deal... the transaction is value accretive for TATA and TK as it will result in sustainable steel business operations with a robust capital structure,” said Edelweiss.

Jefferies said de-consolidation of Tata Steel’s debt post the deal could reduce the company’s consolidated net debt to Rs 83,000 crore.

“Uncertainty about the JV and concerns about a lower debt transfer had been near-term overhangs, but should ease now,” said Jefferies, retaining a ‘hold’ rating.

CLSA has maintained ‘buy’ due to its strong margin outlook and tightening demand-supply of steel in India but the firm lowered target price by 7 per cent to Rs 855.

ICICI Securities has also marginally lowered its target price on Tata Steel due to the steel maker’s reduced economic interest in the JV to 45 per cent.

Bloomberg data showed 25 of the 29 analysts tracking the company have a ‘buy’ rating on it, while three have a ‘hold’ rating and one has a ‘sell’ rating. The consensus target price is Rs 781.53, which means there is a 39.3 per cent potential upside from Monday’s closing level.