For shareholders of Tata Steel Ltd, India’s second-largest private sector steel producer, the September quarter numbers reported on Friday have given a glimmer of light after a weak performance through FY20 and a disastrous first quarter. With the operating metrics for India bouncing back in Q2, and the solution for a part of its European overhang, the company looks set for a turnaround.

On Friday, Tata Steel’s management said it is getting ready to split its European operations down the middle as it begins talks with Scandinavian steel sheet maker SSAB Sweden to sell its profitable Netherlands division. The deal is expected to close in six-nine months. Tata Steel has about 7.5 million tonnes per annum (mtpa) of steel-making capacity at its IJmuiden Steelworks in Netherlands and another 3 mtpa at Port Talbot in the UK.

The stock market took Tata Steel’s announcement kindly as shares rose 1.15% during Muhurat trading on BSE on Saturday. “While the traditional line of thinking is to sell the loss-making asset (Port Talbot) and retain the profitable division, the sale to SSAB will be a good move for Tata Steel in the long-run,” said Amit Dixit, assistant vice-president, research, Edelweiss Securities.

Comparing the deal to the September acquisition by Cleveland-Cliffs Inc. of ArcelorMittal USA for $1.4 billion, Dixit said: “That transaction was done at six times of through-the-cycle Ebitda/tonne (calculating the quarterly average Ebitda/tonne of the past three years). Using the same principle, Ijmuiden’s Ebitda/tonne should fetch a significant value, giving Tata Steel the ability to reduce its debt and free up focus for solving UK business.”

Ebitda is earnings before interest, tax, depreciation and amortization. Ebitda per tonne is a key metric for the operating profitability of a steel plant.

The two key approvals required for the deal to go through are from the unions and the European Competition Commission. Unlike the EC scuttling Tata Steel Europe’s proposed merger with Germany’s Thyssenkrupp last year, the acquisition by SSAB is not expected to meet with resistance since the Ijmuiden plant produces flats for automotives and packaging industries, while SSAB focuses on plates.

“Being in the EU restricts the level of government support that the UK can offer Port Talbot. Once Brexit happens in March, the UK government will be able to offer concessions in terms of subsidies or investment that it can’t offer now,” Dixit said. “Port Talbot is the only crude steel-producing plant in the UK and employs a lot of people. Tata Steel will be in a better position to negotiate with government post-Brexit.”

Overall, Tata Steel Europe’s performance also improved operationally in the second quarter. After reporting negative Ebitda in FY20 and in the first quarter of this fiscal year, the European business was close to turning Ebitda-positive in Q2 had it not been for carbon credit provisions of €50 million.

In India, Ebitda surged 49% year-on-year to ₹6,025 crore, driven by higher volumes, improved realizations and cost efficiencies. The management said sales realizations are likely to increase in Q3 as well, as higher international steel prices allow domestic mills to hike rates.