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  • Company update: Tata Steel — Add — TP Rs.700

    Publish date: July 3, 2018

    Tata Steel has forged a 50:50 joint venture agreement with German group ThyssenKrupp (TK), while the IPO proceeds will be split 55:45 in favor of the latter.

    The joint venture will help both companies achieve an annual joint synergy of €400-500mn.

    The JV — ThyssenKrupp Tata Steel BV — will have its headquarters in Amsterdam, The Netherlands, and is set to become the second-largest flat steel business in Europe.

    Key features

    • Both companies will own 50% stake in the JV for at least six years
    • TK has the right to decide when to launch the IPO
    • TK will receive 55% of the IPO proceeds
    • The JV capex is estimated to be close to €800-900mn

    Key takeaways from the deal

    • Both companies expect a windfall of €400-500. They are planning to raise this by streamlining their administration and logistics cost and optimizing their maintenance and network services. The costs will also come down by rationalization of 4,000 jobs. The Tatas believe they will meet the annual synergies in the next 12 to 24 months.
    • Tata Steel is expected to offload €2.5bn debt, while TK will transfer pension liabilities close to €4bn.

    Our forecast

    • We believe the current EBITDA to be €1.7bn, but can go up to €2.1 billion if full capacity is realized.
    • Our report (you can read our detailed finding by clicking below) has gone in-depth to calculate Tata Steel’s FY2019, FY2020 and FY2021 estimates and the JV’s consolidated net debt.

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