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The stock of Tata Steel has gained 4.5 per cent since last Tuesday after the company announced its intention to sell off its UK-based business.
This will help Tata Steel finally purge itself of the loss-making and debt-heavy UK operations, which have been a drag on the company’s financials since 2007, when it entered the European market by acquiring the Anglo-Dutch steelmaker Corus.
Tata Steel operates largely in India and Europe. While the Indian business is profitable, the European operations (60 per cent of consolidated revenue) are loss-making even at the operating profit level. For the nine months ended December 2015, Tata Steel Europe posted revenue of ₹51,147 crore, down 15 per cent (Y-o-Y) and reported operating loss of ₹339 crore compared with operating profit of ₹3,231 crore in the year-ago period. Losses at the UK business have also eaten into the company’s net worth. As of March 2015, Tata Steel’s consolidated net worth of ₹31,349 crore was nearly half the net worth of its Indian business.
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