Tata Steel stock gains, TRF hits lower circuit after board okays mega merger scheme

Shares of Tata Steel opened 3 percent higher on September 23 after the company said that its board has approved the scheme of amalgamation between seven of its group companies and itself. These seven companies include Tata Steel Long Products, The Tinplate Company of India, Tata Metaliks, TRF Limited, the Indian Steel & Wire Products, Tata Steel Mining and S&T Mining Company.

At 9:20 am, the scrip was quoting Rs 107 on the NSE.

In the previous session, Tata Steel stock settled at Rs 103.65 apiece on the BSE, down 0.81 percent, while the benchmark Sensex closed 337.06 points or 0.57 percent lower at 59,119.72.

Meanwhile, shares of TRF opened 5 percent in the red and hit lower circuit. The scrip was quoting Rs 356 on the NSE at 9:20 am.

Tata Metaliks share price dropped 2.5 percent to Rs 781 and Tata Steel Long Products declined almost 7 percent to Rs 690.

The proposed scheme would synergise – operational integration and better facility utilisation; improve customer satisfaction and services; efficiency in working capital and cash flow management; faster execution of projects in pipeline; rationalization of logistics costs.

The share exchange ratio has been decided individually for the seven companies, as per the filing. Share swap ratio:

-Tinplate shareholders to get 33 shares of Tata Steel for 10 shares of company

-Tata Metaliks shareholders to get 79 shares of Tata Steel for 10 shares of the company

-Tata Steel Long shareholders to get 67 shares of Tata Steel for 10 shares of the company

-TRF shareholders to get for 17 shares of Tata Steel for 10 shares of the company

Analysts say that the move is positive for all listed companies except TRF. The merger ratio is unfavourable as the share swap is at a 53 percent discount. It is notable to mention here that TRF shares had run up 120 percent in the last month.

According to IDBI Capital, the move will bring all companies under Tata Steel simplifying the structure. Some of these companies are generating strong cash flows (and have lean balance sheets) which the parent will be able to utilize.

“Timely move which should bode well for the stock. We have a BUY rating on Tata Steel,” said IDBI Capital.