Published on 19/11/2019 1:17:20 PM | Source: Live Mint

Investors discount Tata Steel`s European restructuring plan as demand revival more vital

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Investors haven’t really warmed up to Tata Steel Ltd’s plan to rejig its European operations. The restructuring has been in the works for a while now. Besides, the market has also already factored in the latest announcement of job cuts. Shares of Tata Steel were down about 0.4% on Tuesday.

What is more important for investors is the road ahead on paring debt. The management has said it will reduce capital expenditure and unlock some of its working capital, and also sell part of its non-core assets. However, the company has been facing challenges here.

“While management has guided for USD1b net debt reduction every year, it acknowledged the difficulty in achieving the same this year as market conditions has not been favourable. It aims to curtail capital expenditures in 2HFY20 and expects the working capital release to support cash generation," said Motilal Oswal Financial Services in a recent report to clients.

The recent stake sale of its step-down subsidiary NatSteel Vina Co Ltd is a welcome move. This shows the company’s commitment to improving operations, which includes unlocking value from subsidiaries. Tata Steel has also announced the sale of four of its non-core assets in the European region. An early closure to such announcements can bode well for the market.

However, investors are even keener to see a revival in the domestic and international steel sector. To be sure, there has been an uptick in steel prices in November. Domestic prices are upwards of ₹35,000 per tonne, while still below the anti-dumping parity levels, which is a welcome sign.

A global revival is much needed, though. The trade war between the US and China is not helping, though there are indications that global steel prices may be bottoming out. Prices of hot rolled coils (HRC) internationally have been inching up as well. HRC prices in China have inched up about 2.8% to CNY 3610 per metric tonne, Bloomberg data shows.

The Tata Steel stock has risen about 15% in the past month as steel prices have seemingly bottomed out. However, prices in the international market have to sustain higher for more benefits to roll down to investors.