Investors cheer mega merger of seven metal subsidiaries with Tata Steel even as Sensex tumbles over 1,000 points

• Tata Steel today announced the merger of its seven metal subsidiaries with itself.
• The company’s investors cheered the decision and the shares surged over 4% in early trade today.
• Analysts sounded optimistic about the mega merger, with the consensus being that this will result in cost savings – of about ₹750-800 crore annually.
• The company had earlier outlined its merger plans while tabling the annual report of FY22.

Tata Steel investors are cheering its decision to merge seven of its subsidiaries with the company, pushing the stock up over 4% even as the Sensex crashed over 1,000 points, or almost 2%, on Friday.

Earlier in the day, Tata Steel announced that it would merge seven of its subsidiaries – Tata Steel Long Products, The Tinplate Company of India, Tata Metaliks, TRF, Indian Steel & Wire Products, Tata Steel Mining, and S&T Mining.

In response, shares of Tata Steel surged over 4% before paring most of their gains as the overall market sentiment turned negative.

The merger announcement is in line with the Tata Group’s bid to consolidate its businesses having common synergies. Earlier this year, the group announced the merger of Tata Consumer and Tata Coffee. In late 2021, Tata Steel BSL was merged with Tata Steel.

Media reports also suggest the Tatas could be looking at merging AirAsia India and Vistara with Air India.

Why is Tata Steel merging its seven metal subsidiaries with itself?

While Tata Steel listed out several reasons for the mega merger, the underlying rationale is that it will improve operational efficiencies and the company will benefit from synergies of better business planning.

“The proposed amalgamation will provide an opportunity for reduction of operational costs through transfer of intermediary products between companies, better order loads, synergies from sales and production planning across the business,” the company said in an exchange filing.

What are the benefits?

Reacting to the news, analysts sounded optimistic about the mega merger, with the consensus being that this will result in cost savings – of about ₹750-800 crore annually; operational and tax synergies; and a more focused business plan.

“In our view, the amalgamated subsidiaries are also likely to benefit from TSL’s existing client base. On the procurement front, common sourcing of key raw materials such as iron ore and limestone would also reduce cost,” said a report by Edelweiss Research.

Analysts at Kotak Securities also sounded optimistic about the news.

“Merger is a positive step as it will simplify the corporate structure, plug leakage of additional royalty payments on inter-company iron ore transfers, reduce corporate overheads, enable various businesses with higher financial flexibility to progress on growth projects and bring in further operational, procurement and tax synergies,” said Jatin Damania, vice president - fundamental research, Kotak Securities.

Damania added that Tata Steel would end up saving an estimated ₹750-800 crore annually due to the merger. This would help the company meet around 10% of its annual deleveraging target of $1 billion (approx. ₹8,100 crore).

“In our view, the benefits of lower iron ore royalty cost are likely to be immediate, but the more strategic ones such as portfolio optimisation, sharpened focus on long products and cross-functional benefits are likely to accrue over a period of time,” the Edelweiss report added.

Here’s how the five listed companies – including Tata Steel – performed financially in FY22:


Source: Company reports