Company’s market capitalization stands at Rs. 22,770.15 crore, less than half of its 2007 Corus Group acquisition price of Rs. 53,460 crore. From January 29, 2007, a day prior to the mega acquisition, shares of Tata Steel have crashed 54.88% to touch Rs. 234.45 as on February 8, 2016.
An investment of Rs. 1,000 in Tata Steel’s shares nine years back, would now fetch Rs. 448.80. Today, today the company’s market capitalization stands at Rs. 22,770.15 crore, less than half of its 2007 Corus Group acquisition price of Rs. 53,460 crore. From January 29, 2007, a day prior to the mega acquisition, shares of Tata Steel have crashed 54.88% to touch Rs. 234.45 as on February 8, 2016. Interestingly, only 2007 and 2010 were the years when the steel giant's’ market cap was higher than the acquisition price of Corus Group.
Acquisition woes
Ever since it acquired the Corus Group, Tata Steel’s debt-to-market cap ratio has tumbled into a negative terrain. As per the company’s annual report, the total consolidated debt was Rs. 24,925.53 crore (as on March 31, 2007) as against its market cap of Rs. 26,098.05 crore. This had brought the debt-to-market cap ratio at 0.95%. The constant fall in stock price since last three years pushed the debt-to-market cap ratio of Tata Steel in a deep negative zone. The company’s total consolidated debt stood at Rs. 71,578.88 crore as on March 31, 2015 as against the current market cap of Rs. 22,770.15 crore. The company’s total consolidated debt is now three times its market cap.
Sensex Vs Tata Steel
The Tata Steel stock, come to think of it, is not in line with the yearly Sensex trends since 2007. In last nine years, Tata Steel has given negative returns on five occasions as against the three instances of Sensex giving negative returns.
For the year of acquisition of Corus (i.e. 2007), Tata Steel had outperformed the Sensex with 93.82% return as compared to 47.14% return seen in Sensex. The positive momentum created via the mega deal was seemingly the trigger behind Tata Steel’s skyrocketing voyage in 2007. Then, just like other heavyweights, Tata Steel succumbed to the global meltdown of 2008, which saw the scrip fall by a whopping 76.80% in the calendar year. But the Sensex had tumbled less at 52.44%.
Tata Steel followed up with a steep rise of 184.80% in 2009, the year that marked the beginning of global recovery. The benchmark Sensex rose 81.03% during the year.
For CY2010 and CY2011, Tata Steel failed to outperform the market barometer, rising only 9.93% in 2010 as compared to the 17.43% surge in Sensex; while in 2011, the scrip tumbled by half compared to a 24.64% fall in Sensex.
CY2012 was the last year of cheer for the company as the stock outperformed Sensex with a 27.75% return as against 25.69% return in the case of Sensex. Since then, the scrip has lagged way behind the benchmark index. Despite the positive Sensex return of 8.97% in 2013, Tata Steel’s stock dipped 1.13%. The scrip couldn’t even manage to close 2014 in the positive zone (5.69% negative return) despite the Sensex rise of 29.89%. CY2015, the year of topsy-turvy rides for the bourses, saw Tata Steel plunging 35%, at a time when Sensex tanked only 5.02%. In 2016 so far, the stock has plummeted 9.67% as compared to a 7% fall in Sensex. Sensex has nosedived 19.10% from its peak of 30,024.74 touched on March 4, 2015; but during the same period, Tata Steel’s stock has tanked 32.65%.
Recovery seems distant
Tata Steel posted a net loss at Rs. 2,127.2 crore for the quarter ended December 31, 2015 as compared to net profit of Rs. 157.1 crore for Q3FY15. Meanwhile, the total income decreased from Rs. 33,752.3 crore to Rs. 28,135.2 crore for the same period.
A July 2015 report of Credit Suisse observes that the subdued sentiment in the sector has impacted the bottom lines of the steel companies and Tata Steel’s debt burden puts extra pressure in this bleak scenario. India Ratings and Research, recently maintained a negative outlook for the steel sector in Fy17 too, with China continuing to export its economic problems to the world. The agency does not see any major improvement in steel prices over the near to medium term.
According to IIFL, Tata Steel’s consolidated results were weaker than estimates due to an operating loss in its European division and pressure on steel prices in the domestic market. Operations in Europe are expected to remain weak due to pressure from cheaper imports and lower spreads in the UK. With the Kalinganagar plant expected to be commissioned by end-FY16, the plant would start contributing from FY17. IIFL has lowered estimates factoring in the sharp correction in steel prices as also the volume guidance in Europe in the light of weak demand and high imports. Any recovery in earnings seems distant as of now.
