“The writedown is not a surprise since we always believed the acquisition was worth much less than what was paid for,” said Bhavesh Chauhan, senior research analyst, Angel Research. “It is very likely that more assets will be divested in Europe as the operations lose money. It is the Indian operations that are supporting Europe and though we do not expect profitability in India to match that of the previous two fiscal years, it is investing more here and looks very solid. We continue to be bullish on the stock.”
Tata Steel’s operating margins in Europe is -2% while in India it is a healthy 27% as of the October-December quarter 2012-13. It has sold off and mothballed assets in Europe in the past including a restructuring under the “fit for the future” programme in 2008-09 when an impairment of assets worth R4,095 crore was made. Further action on those lines towards a leaner set up now looks more like a compulsion as a prolonged contraction in Europe may handicap the company’s expansion plans in India.
“The emergence of funding constraints affecting the expansion of the profitable parts of Tata Steel, due to its UK Holding’s losses, suggests that further action, along the lines of the disposal of Teeside Cast Products in 2011 is needed in order to reverse Tata Steel UK’s cash outflow,” said Alan Greene, vice-president and senior credit officer, Moody’s.
A questionnaire sent by HT to the company went unanswered.