The acquisition of steel business of NatSteel will give Tisco an entry into the South-east Asian market. The Indian steel major has announced that it is acquiring the steel business of NatSteel of Singapore for a cash payment of $286mn or Rs1,300 crore. NatSteel has a presence across S.E.Asia, through which Tisco will now be able to cater to growing demand in that region, says an analyst with a leading securities research firm.

It is expected that the acquisition of NatSteel would ensure a low cost entry into these markets for Tisco as entry barriers in countries like Malaysian are quite high. NatSteel has a rolling capacity of 3mnt, of which it currently uses approx. 2mnt. With Tisco''s expertise, the throughput could be improved.

NatSteel manufactures steel through the secondary route, using scrap, sponge and pig iron. Tisco has large reserves of iron ore as well as coal, which it can easily convert into sponge (with some capex) and utilise the downstream production to produce steel. The Indian company has a potential of saving Rs 6,000 a ton of steel in costs at the operating level, analysts said.

"It appears that Tisco has struck a good deal, and the acquisition should be viewed as a long term strategic move that should start contributing significantly to Tisco''s bottomline from FY06 on," analysts said. On an investment of Rs1,300 crore, the company has a potential to earn 10-12 per cent returns in FY05, and 20 per cent in FY06 onwards. The Tisco stock has been seeing some buying interest over the past couple of weeks on expectation of steel prices firming up further in the coming months. It is expected that the company will benefit from the foreign acquistion.