Tata Steel began operations in Europe with its USD 13 billion acquisition of Britain's Corus in 2007.
In an interview to CNBC-TV18, Giriraj Daga, senior research analyst, Nirmal Bang Securities shares his views on the likely deal between Tata Steel and Klesch Group for selling its long products business in Europe which employs about 6,500 people including those at its distribution facilities .
Below is the edited transcript of the interview to CNBC-TV18.
Nigel: What kind of EBITDA was this long-steel business working with and what kind of impact are you seeing going ahead?
A: Normally companies don't provide the unit wise breakup like they have couple of units in Europe. But what we need to understand is that this unit was the least profit making compared to other two-three units. So, I think that unit was near about breakeven at EBITA level.
In terms of profit, we believe it is a positive deal if the company is able to sell the unit.
Ekta: Two questions on the hypothetical situation that the deal goes through with Tata Steel and they sell their long products business in Europe, one, what sort of margins will they then work with post that for example will there be an improvement in the blended margins of Tata Steel? Two, how much will the debt reduce by?
A: If we are assuming that this unit was not as much profit-making as compared to other units, there will be surely margin expansion for the entire Tata Steel Europe. But the debt reduction would obviously depend on how much money they get from the deal.
It is more on the contingent side of the deal, so we will wait for the actual deal to happen and then comment on how much debt reduction can take place.
Nigel: The book value of that unit was around USD 500 million so are you assuming 1:1 or do you think it will happen at half times?
A: Let it happen I would say because right now market is not very good so let it happen.
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