Japan firms exit Tata JV

Calcutta, March 26: Japanese companies Kubota Corporation and Metal One have decided to exit a prestigious pipe venture with the Tatas in Bengal as local competitors outplayed them in the business, resulting in losses from inception.

Tata Metaliks, a subsidiary of Tata Steel, will now buy out the stakes from the two Japanese firms in the ductile iron making unit located in Kharagpur.

Tata Metaliks Kubota Pipe Ltd (TMKPL) is 51 per cent owned by Tata Metaliks with Kubota, a $15-billion behemoth and leader in DI pipe, holding 44 per cent and Metal One Corporation, partly owned by Mitsubishi, 4 per cent.

Harsh Jha, managing director of Tata Metaliks, said the move was to make the DI pipes business profitable.

“We found the way to turn the venture around is to merge the JV with Tata Metaliks. So, we are buying them out in the venture. However, Kubota will continue to give us technology support,” Jha said this afternoon.

At present, the venture buys raw material — hot metal — from Tata Metaliks at market price. However, all its competitors produce the raw material from iron ore on their own, driving a price advantage.

Once merged, the DI pipe firm will also get the hot metal at a competitive price, bringing the cost of production down and make the product competitive in the market.

However, Kubota’s stake would have got significantly diluted once the merger went through, and the Japanese firm was not comfortable with that. Some industry observers said the move could be a precursor to Tata Steel eventually merging Tata Metaliks with itself.

Tough competition

The JV, with production capacity of 110,000 tonnes built at a cost of Rs 200 crore, has been making losses from the beginning. It never reached close to the rated capacity because of stiff competition from the local players.

“Kubota was tired of unfair trade practices by some of the competitors who beat the company hollow in the market place, especially in Bengal. There is a feeling among the management that several municipalities in the state, the main buyers of DI pipes, did not support the new company either,” said one in the know of the development.

TMKPL was also implicated in a regulatory wrongdoing leaving the capacity idle for months. The development could potentially give a bad name to Bengal, though unwittingly, as Japanese firms closely follow the fate of their compatriots before taking a decision on investment in any particular region in the globe.