Jamshedpur, Oct. 18: The world may be watching Tata Steel after its recent announcement to acquire Corus group but analysts are divided on whether the Indian group will have enough resources after the takeover for its greenfield projects.
The concern is primarily focused on exactly where the greenfield projects the Tatas had proposed in Orissa, Jharkhand and Chhattisgarh will now figure.
“Greenfield projects will remain vital for the Tatas. To feed a steel corporate of the probable Tata-Corus combine will mean that current deposits will deplete at a faster rate,” said Hitesh Agarwal, an analyst at Angel Broking.
The combined production capacity of the companies is estimated to be about 23 million tonnes per annum. This could mean that an ore mine currently supplying Tata Steel for 10 years may deplete in two-and-a-half years, if the acquisition takes places, Agarwal added.
Tata Steel has been tight-lipped about its further actions. But senior company officials said greenfield projects are important to them, “capital for which has been provided for”. With global trend of producing steel closer to the ore source to reap benefits, greenfield projects are very much part of the game plan, he said.
Earlier this year, Tata Steel had announced the acquisition of 3,000 acres for an upcoming 6-million-tonne-per-annum steel plant at Kalinga Nagar in Orissa, for which it reportedly paid Rs 600 million. The steel giant was also planning to set up greenfield projects in Chhattisgarh’s Jagdalpur (5 million tonnes) and Tontoposhi in Jharkhand (10 million tonnes). What has left the market wondering is whether funding for all of these will take place just as smoothly.
Says Tritesh Vinay, an analyst at Edelweiss Capital Markets: “There has not been much news other than the Orissa greenfield projects. So, one does not know where exactly the company is headed with regard to similar projects in Jharkhand and Chhattisgarh. There will be questions on the funding.”
The company has announced some amount of equity dilution, how much further it would go down the same road is something the market is inquisitive about, he added. Tata Steel will announce its Q2 results next week, where analysts’ meet will also be held.
The advantage that Tata Steel brings to Corus (at a current estimated $7.6 billion) is that of being a low-cost producer of steel, a position it enjoys given the iron ore deposits it sits on.