Mumbai: Corus’ poor performance pulling down overall profit of Tata Steel notwithstanding, company’s managing director B Muthuraman said that the $12-billion buy was a good deal as its fundamentals were sound.
“You don’t buy looking at the short-term, but the long-term future of a company. Corus was a very very good buy as its fundamentals are quite sound,” Tata Steel Managing Director B Muthuraman told PTI here.
Tata Steel Group’s EBIDTA margin, a pointer to the health of a firm, stood at only nine per cent for the quarter ended 31 December 2008, as against Tata Steel India’s 31% during the same period.
The Indian operation helped the over 100-year-old steel company to post a relatively good show on EBIDTA margin for the nine-month period ended 31 December 2008.
Tata Steel had acquired the European firm in the year 2006 for %12 billion.
While Tata Steel India clocked 44% margin during the period, Tata Steel Europe stood at only 11%, which is higher than Nat Steel Asia at 4% and 3% in Tata Steel Thailand.
Echoing Muthuraman’s statement, an industry official said that Corus was a “good buy” for Tata Steel.
“However, it’s poor show on the books has got nothing to do with its fundamentals. It’s a victim of the current global downturn. Even Arcelor Mittal could not by-pass the downturn,“ he said.
The cost of production at Corus was higher compared to its peers and the parent firm Tata Steel mainly because of its high labour and administrative costs. The absence of raw material security also burn a hole in its balance sheet.
A highly-placed Tata Steel official, however, said that Corus has helped the Group to spread out its geographical diversity and ensured a very good product-mix into its kitty. It has also brought a whole lot of experienced and knowledgeable people into the company.
“Besides, the strong R&D team of Corus is a bonus. This helps us to make better products in our Indian operations as well,” he said.
The Indian operation of Tata Steel is one of the lowest cost producers of steel having access to captive iron ore and coal mines.
Corus, which has 19 million tonne annual capacity, mainly imports iron ore from Brazil to feed its production.
The company has recently entered into a five-year agreement with a Brazilian firm to ensure iron ore supply. But, coal prices are still ruling high.
Tata Steel Group, which has a combined 28.1 million tonnes per annum steel making capacity, is the sixth largest steel firm in the world.
With the acquisition of Corus, the combined raw material security of the Group, however, came down to 22%, down from 80% for Tata Steel alone.
Muthuraman said that the Group would provide raw material security to Corus and has, in fact, trying to ensure supply from Riversdale, the coal mine that the Group acquired in Australia.
The company has already mentioned that it would spend 20% of its proposed $1.2 billion capex programme in 2009-10 to develop mines overseas.
The Group had earlier said that it was looking for mines abroad mainly to feed Corus and targets to achieve 100% self-sufficiency for India and 50% for its European operations and has identified raw material resources in America, Western and Southern Africa and Australia for acquisition.
Tata Steel has acquired stake in two coal mines in Mozambique and one in Australia. It also has stakes in an iron ore mine in Ivory Coast and has entered into a joint venture in Oman for limestone mining.