Tata Steel sees cost savings worth Rs 1,500 crore from amalgamation of subsidiaries

Tata Steel is looking to save costs worth as much as Rs 1,500 crore with the amalgamation of all of its subsidiaries, which were already part of its consolidated entity. Among the cost savings will be Rs 700 crore to Rs 800 crore of annual royalties, which will also be part of the synergies.

In a major consolidation push, Tata Steel announced late last night that it will amalgamate all metal companies of the Tata Group under its umbrella. The move includes listed as well as unlisted companies.

Tata Steel's Executive Director and Chief Financial Officer Koushik Chatterjee told CNBC TV-18 that the move brings procurement, technological, financial, and operating synergies to Tata Steel. He further added that it made logical sense to integrate the subsidiaries with strategic relevance after the company completed the integration of Bhushan Steel.

"All of these businesses have a great future going forward," he said, adding that the move will bring further simplification to the operating structure of Tata Steel.

The move will be EPS accretive to Tata Steel's standalone business, the quantum of which, Chatterjee, said would be disclosed during the company's September quarter earnings review.

The transaction goes down as a Related Party Transaction, for which the Securities and Exchange Board of India (SEBI) came out with revised guidelines that took effect on April 1 this year. Under the new rules, companies will need to provide an explanatory statement to their shareholders in the Related Party Transactions (RPTs) notice. Additionally, companies will have to comply with the new specified format for reporting of RPTs to stock exchanges.

Under the new rules framework for RPTs, all transactions will need to be approved by the audit committee as well as the shareholders of a listed company.

The CFO of one of India's largest steel producers said that the company would have gone ahead with the transaction regardless of the guidelines as it was next natural step post the Bhushan Steel acquisition. He also spoke about how the business structure of Tata Steel Long Products has changed after its acquisition of Neelanchal Ispat. "With the NINL acquisition, the shape of the businesses of TSLP very significantly so it made sense for us to integrate all of it in to Tata Steel," he said.

Neelanchal Ispat Nigam Ltd. was formally handed over to Tata Steel Long Products in July this year in a Rs 12,100 crore deal. Chatterjee also said that the amalgamation will not change the debt structure of the consolidated entity of Tata Steel.

The one Tata Steel subsidiary that has been in focus even before the merger announcement is TRF, shares of which were locked in nine consecutive upper circuits ahead of today's session. The stock price had doubled between September 13 and September 20. Tata Steel's CFO spoke about how the company has reported a profit in the April-June quarter. "We have also changed the business model of TRF, which caters more to Tata Steel's engineering and project requirements," he said.

On the business front, Chatterjee said that things are shapping up for the better after June to August were "very poor months." The situation in Europe has also been stable in the last two months, according to Chatterjee. When asked about whether the company plans separate listings of its India and European business, Tata Steel's CFO said that there is no such plan under consideration.

Shares of Tata Steel are trading 1.6 percent higher as of 11 AM at Rs 105.30.