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Tata Steel shares gain over 5% as UK arm close to resolving pension issues

LiveMint logoLiveMint 17-05-2017 Ravindra N. Sonavane

Mumbai: Shares of Tata Steel Ltd on Wednesday gained as much as 5.3%, its biggest gain in six months, after the company said its UK arm was close to resolving pension issues, which brings the unit a step closer to a potential merger with ThyssenKrupp AG.

The stock touched a high of Rs481 a share, a level last seen on 12 April, and gained as much as 5.27%, its biggest gain since 10 November 2016. The scrip gained for the third consecutive session and rose over 10% in this period. So far this year, it has gained 23%.

Tata Steel UK and British Steel Pension Scheme trustees have agreed in principle on the key terms of a regulated apportionment arrangement. If an agreement is reached and the necessary approvals are obtained, Tata Steel will pay a settlement of £550 million to British Steel Pension Scheme and a stake of 33% in Tata Steel UK. It will also sponsor a new closed pension plan, Mint reported

This could potentially pave the way for a merger of Tata Steel UK with ThyssenKrupp or other steelmakers, which Tata Steel has long been exploring to cut losses in an oversupplied steel market, the Mint report added.

The gains also came on account of excellent numbers in the March quarter boosted by a combination of higher contribution from domestic ferro alloy division, strong performance in Europe and few one-off benefits in the domestic arm.

The company reported a loss of Rs1,168 crore but this was mainly due to charges related to the closure of its British Steel Pension Scheme and a few other exceptional items such as the restructuring of its UK operations. If one excludes that, its profit was Rs3,352 crore against Rs301 crore in the December quarter. Twelve analysts polled by Bloomberg had forecast the steelmaker to report a consolidated net profit of Rs988.4 crore.

Consolidated earnings before interest, tax, depreciation and amortization (Ebitda) rose 91.4% sequentially and by 3.2 times over a year ago. Quarter-on-quarter rise of 22% and 3% in deliveries and realizations helped more than offset coking coal costs.

Analysts expect that its European business performance would remain strong on the back of restructuring exercise, superior product mix, currency tailwinds and cost rationalization.

Of the analysts covering the stock, 16 have a “buy” rating, eight have a “hold” rating, while 11 have a “sell” rating, shows Bloomberg data.

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