Why Share Price of Tata Steel BSL is not Increasing?

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Tata Steel Ltd (NS: TISC ) Bsl made a new 52 week high in May 2021. However, since then, the stock has not been able to keep its momentum intact and has gone into a long consolidation. Stock is in a fixed range for a long time. When buying interest has again returned in Metal Stocks and Tata Steel has started hitting new highs, BSL shares are still struggling to move higher.

Many Investors are holding Tata Steel BSL shares and finding it difficult to understand why it is underperforming? So, let's see what could be the possible reason behind this.

Earlier, Tata Steel (parent/promoter) had announced to merge Tata Steel BSL with them at the ratio of 15:1. It means for every 15 shares of Tata Steel BSL, you would get 1 share of Tata Steel. If Tata Steel was trading at ₹750, BSL should be trading around ₹50 to maintain the ratio.

Since the merger ratio was announced, Tata Steel BSL was closely following Tata Steel and moving as per the trend visible in Tata Steel. However, in May 2021, BSL stock saw something unexpected move!

Tata Steel Bsl was supposed to follow Tata Steel. But a new buying emerged in stock which forced it to break the merger ratio and rally by more than 50% in just a few days. In comparison, Tata Steel stock increased by only 20% in the same time period. Tata Steel Bsl outperformed Tata Steel for the first time. However why BSL share price increased so much?

With the view that the merger might not happen and be canceled someday as the merger was already pending for a long time, it is possible that someone took the risk and accumulated all the shares of Tata Steel BSL up to Rs 110. 

But soon after this happened in BSL shares, this update came into the market. "We have also advanced the process of the merger of Tata Steel BSL with Tata Steel which will also yield further synergies for the company in the future," Chandrasekaran said while addressing shareholders at the company's 114th Annual General Meeting (AGM) held virtually. This update crushed all the expectations that the merger might be canceled. 

When Tata Steel was trading around Rs 1100, Tata Steel BSL was supposed to trade around Rs 70 levels. But BSL shares were already trading around 90 levels. In July, Tata Steel's share price has increased by nearly 20%. However, since the Bsl shares were already trading much higher than the merger ratio, the stock has not been able to see any momentum.

If that is not the case, BSL stock shouldn't be in a range-bound movement for a long time. It is also possible that the Person who earlier accumulated shares of BSL is now using the opportunity of the rising price of Tata Steel Stock to exit from his BSL shares. 

To calculate (as per the announced merger) where Tata Steel BSL should be trading right now as per Tata Steel share price, just divide the Tata Steel Share Price by 15 and reduce the resultant price by another 3–10%. Extra discount of 3-10% has been taken considering the past movement trend of both shares. In addition to the 15:1 merger discount, BSL was used to trade at a 3-10% more discount than Tata Steel. 

But now, there is good news for Tata Steel BSL shareholders! Due to the continued underperformance of Tata Steel BSL and the outperformance of Tata Steel, Tata Steel BSL has again reached near to its Merger ratio. If Tata Steel is trading around 1435 levels, Tata Steel BSL should be trading around 95+some discount. Currently, BSL shares are trading at around 95.40.  If Tata Steel continued to rise, BSL Stock might be able to Align its price movement with Tata Steel soon and start moving higher whenever Tata Steel moves higher.

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  • Manu Sg @Manu Sg
    Merger ratio not confirmed
    Like 3
    • Soumen Siddhanta @Soumen Siddhanta
      @Sparsh Goyal What will be the ratio 15:1?
      Like 0
    • Sparsh Goyal @Sparsh Goyal
      for every 15 shares of tata steel bsl, shareholders would receive 1 share of tata steel
      Like 1
    • Sparsh Goyal @Sparsh Goyal
      @Soumen Siddhanta for every 15 shares of tata steel bsl, shareholders would receive 1 share of tata steel
      Like 2
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  • Amit Kumar @Amit Kumar
    Useless, Is there any guarantee BSL will merge with tata steel.
    Like 5
    • Sparsh Goyal @Sparsh Goyal
      No doubt merger announcement has already passed a long time. But Chandrasekaran (Chairman of Tata Sons) has told in AGM that merger process is in advanced stages and will took place soon.
      Like 2
    • Mazhar shaikh @Mazhar shaikh
      Merger is challenged and under NCLT decision.Hearing postponed 2 times.
      Like 1
    • Sparsh Goyal @Sparsh Goyal
      @Mazhar shaikh i haven't heard about that. thanks for sharing here. it could be a significant developement for the Tata Steel bsl shares if any new thing came from that
      Like 0
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  • benny dcosta @benny dcosta
    Superb analysis. Thks
    Like 6
  • rajendra labdhe @rajendra labdhe
    Thank you sir for the good analysis
    Like 3
  • Jai Soni @Jai Soni
    Great 👏
    Like 7

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