Tata Steel's product launches a positive: Analysts

Last Updated: Wed, Aug 21, 2013 06:34 hrs

Tata Steel Ltd's plan to launch new products in Europe in the current financial year is a move in the right direction, but the company may benefit only in the long term, analysts said.

Last week, at its 106th annual general meeting, Chairman Cyrus Mistry announced the company would launch 30 new products in Europe this fiscal apart from the 17 products launched in the financial year ended March.

The launch of so many new products in the current sluggish steel market amid uncertainty over demand revival seemed like a risky move as economic slowdown across the globe has hurt the steel industry.

Analysts, however, see it differently and are of the view that the company will reap benefits of the decision after a couple of years. "There will be no immediate benefits from the launch as it takes some time for products to establish itself in the market, but the move is positve," said an analyst of a local brokerage. It is a survival strategy, he said. Over the next two years, launching new products will be a value addition, he added.

"The company's research-and-development team is strong and so the products to be launched will have been thoroughly researched and should be having assured demand in the market," said another analyst with a local brokerage. These products will mainly be catering to high-end demand, he said. "No company will launch so many products in a market so sluggish."

Added Umesh Patel, an analyst with KR Chouksey: "Value-added products have a high earnings before interest, taxes, depreciation and ammortisation (Ebitda) margin and so, if demand picks up, it will help to sustain the margin on account of value added products."

Steel companies are trying to creat some market for themselves by launching new products, said some analysts. The idea to launch new products is also to take focus from the main steel market, which is dull at present, they added.

New product launch could keep Tata Steel elevated in the market for six-nine months, but after that, it will have to align itself with the main steel market, which is sluggish, said a city-based analyst.

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