Tata Steel to acquire BRPL at enterprise value of Rs 900 crore

24 December 2016

Tata SteelBSE -0.42 % has struck a deal to acquire 100% equity in Odisha-based Brahmani River Pellets (BRPL) at an enterprise value of Rs 900 crore, even as the Tata group and Cyrus Mistry air their differences before shareholders and on legal fora.

The deal will be financed through the flagship’s internal cash flows, according to a statement issued on Friday, and help Tata Steel ramp up its new 3 million tonne (mt) steel plant at Kalinganagar.

JSW and several other steel majors had been eyeing BRPL’s assets, which include a 4-mt pellet plant in Jajpur and a 4.7-mt per annum iron ore beneficiation plant in Barbil connected with a 220-km underground slurry pipeline. When contacted, Vinod Nowal, deputy managing director of JSW Steel, said, “We were seriously interested in acquiring BRPL and were on the verge of bagging the deal.”

Tata Steel said it has signed a definitive agreement with Aryan Mining and Trading Corporation (AMTC) and other companies in the Moorgate Industries Group (MIG has established BRPL) as part of the deal, which is subject to completion of regulatory approvals and other conditions.

MIG was formed after a demerger from Stemcor Group of companies as part of a UK court-approved restructuring in 2015 and holds a significant stake in AMTC.

Analysts tracking the sector said the locational advantage made it a ‘best fit’ deal. “At an enterprise value of Rs 900 crore, this is a good acquisition and will help it (Tata Steel) in the future,” said Sanjay Jain, senior vice-president, Motilal Oswal Securities.

Koushik Chatterjee, Tata Group executive director (finance and corporate), said, “The location of BRPL’s assets makes it strategic to Tata Steel’s Kalinganagar operations and has significant operational synergies to make the plant more competitive. Iron ore from our captive mine in the Joda, Khondbond region will get transferred through the slurry pipeline.

This will reduce freight costs significantly.” Another industry expert pointed out that it would cost the Tatas around Rs 4,000 crore and take nearly four years to build their own pellet plant. Tata Steel, too, said the acquisition was timely since it was ramping up capacity in Odisha. Kalinganagar is expected to gain in operating efficiency and reduce costs of blast furnace operations with BRPL.

Commissioned in October 2015, the Kalinganagar plant is Tata Steel’s first new integrated steel unit outside of Jamshedpur. While Tata Steel has commissioned a 3 mt in the first phase, it will be 6 mt in the next phase.