Tata Steel prepares itself for good and bad times GROWTH PICTURE
A sharper focus on branded products and operational efficiency has fortified the company against downturns
f you are in steel business, you are better off not to get too excited when the going is good and not be too depressed when times are difficult,” says TV Narendran, managing director of Tata Steel, philosophically. Narendran has seen it all with hot-rolled coil prices swinging between a low of $380 and $700 a tonne and India becoming a net importer of steel in 2014-15, and remaining so in the following year, causing havoc to the domestic industry.
However, he calmly deals with fluctuations in business fortunes. The composure that Narendran is credited with when confronted with a market battered by predatory priced imports and consequently low demand growth for locally made steel is largely because of the strong fundamentals of the company that he leads. Tata Steel and JSW Steel, armed with a rich product profile and operational efficiency, are much better placed than their local peers to ride out the periodic downturns in the industry.
During 2015-16, when India was receiving nearly one million tonne (mt) of foreign origin steel a month, thanks to comprehensive economic partnership agreements with Japan and South Korea allowing zero duty imports and “China selling steel here at prices lower than in its own market,” Narendran made use of forums in India and abroad to campaign for “effective trade measures” against dumping. His one liner at a meeting of World Steel Association was: “Since we are investing so heavily in building steel capacity, we have every right to defend that investment.” Steelmakers in the US and Europe who like India were victims of China at that point rallied round Narendran.
Indian trade actions that helped in curbing imports by 38.3 per cent to 7.23 mt in 2016-17, when India’s exports more than doubled to 8.245 mt making it a net exporter, and improvement of steel prices worked to the advantage of Tata Steel. The company’s earnings before interest, tax, depreciation and amortisation (EBITDA) improved 65 per cent year-on-year to ~11,953 crore in 2016-17 on “better price realisations and steel deliveries rising by 1.43 mt to 10.93 mt helped largely by ramping up of Kalinganagar plant.” Much elevated prices of ferroalloys in which Tata Steel has a big profile and good performance by subsidiaries such as Tata Sponge Iron and Tata Metaliks also helped.
Benefits accruing from a favourable market and higher production apart, major improvements in operational efficiencies too enriched the bottom line. Tata Steel, which once again last year brought down blast furnace (BF) coke rate and specific energy consumption in a big way and raised markedly the level of pulverised coal injection in BF, is considered the benchmark for Indian industry on all the three parameter. As the company has made improvements in operational efficiencies a “relentless pursuit,” it has to its credit a 20 per cent reduction in specific greenhouse gas emission since 2006-07, delighting environmentalists.
Tata Steel saw it early that the best way to minimise the impact on balance sheet during a downturn is to go on raising the share of branded products in total sales. Narendran says: “A highly focussed pursuit of steel de-commoditisation has remained the cornerstone of the company’s branding journey.” Despite Kalinganagar mill being in ramp-up phase, 46 per cent of the company’s revenue is derived from branded products. “One out of every seven individual house builders use Tata Tiscon rebars, one in every three galvanised corrugated roofs in rural India is built with Tata Shaktee and every second major infrastructure project T V NARENDRAN MD, Tata Steel here uses Tata Structura, ” says Narendran.
The list of branded steel products in Tata stable for use by individuals, industries, agriculturists and the infrastructure sector is already long. Encouraged by the reception its steel door ‘Pravesh’ has received from house builders, Tata Steel is set to introduce gates and grills and solar panels. The company uses “carefully” chosen converters to make products such as prefabricated houses, wardrobes and doors, with design and engineering inputs provided by Tata Steel.
What, however, remains a point of concern for Narendran is the country’s steel demand growth rate continuing to trail that of production. For example, while India’s finished steel production last year rose by 9.762 mt to 100.74 mt, consumption grew by only 2.127 mt to 83.652 mt. That put pressure on steel entities to export. Exports aided by demand improvement in recipient countries spared domestic steel groups the pains of either operating at lower capacity or maintaining high inventories.
In Tata Steel’s exports of around 750,000 tonnes last year, Kalinganagar mill’s share was 235,000 tonnes. “Flat products constituted nearly 98 per cent of our exports. There was sufficient demand for our long products in the domestic market,” says Narendran. South-east Asian countries where the market for steel is about 80 mt against production of 20 mt should remain a good destination for Indian steel. This apart, Narendran has identified Bangladesh and Myanmar with combined population of around 215 million as a potentially big destination for GC sheets.
“When you consider the domestic market, the demand growth will primarily be driven by the infrastructure sector. The steel policy says steel requirements for infrastructure development will rise to 100 mt in 2030 from the current 10 mt. If investments promised for the sector materialise, then that size of demand in the next 13-14 years is likely,” says Narendran. He dismisses the popular notion that India lacks technology to make steel for use by high end cars. Supplies of automotive steel by the likes of Tata Steel, JSW and Essar meet more than 90 per cent requirements of car makers. Tata Steel’s financials (~ crore) 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 118,753 132,900 134,712 148,614 139,504 117,152 111,562