‘Focus on balance sheet is core philosophy’
TATA STEEL HAS A ROBUST ORGANIC GROWTH PIPELINE IN INDIA, WHICH WILL BE COST-COMPETITIVE AND VALUEACCRETIVE"
Tata Steel reduced debt by ~29,390 crore in 2020-21 (FY21). KOUSHIK CHATTERJEE, executive director and chief financial officer, Tata Steel, in an interview with Ishita
Ayan Dutt says it has prepaid ~5,800 crore of principal debt in the first quarter (Q1) and is aiming to replicate FY21'S deleveraging levels in 2021-22 (FY22). Edited excerpts:
Metals have come under pressure amid concerns about demand slowdown in China and worries the US Federal Reserve may start tapering stimulus. Do you see it impacting the steel cycle?
Iron ore prices have normalised 40 per cent, compared to the May peak of $220 per tonne. But equally, coking coal prices continue to remain elevated. Chinese production is expected to be lower by maybe 50 million tonnes in the second half of this calendar year due to the winter Olympics and climate management targets, which will have an impact on iron ore demand.
With low system inventory, declining import risks, and policy interventions globally — be it the Russian export tax, extension of safeguard measures for the next three years by the European Union, or Chinese restrictions on exports — global steel margins will continue to sustain in the near future.
Do you see Tata Steel’s performance sustaining? What is the deleveraging target for the rest of the year?
There are several initiatives within the company to ensure we are able to leverage the global trading conditions and cost take-out programmes to enhance our competitiveness. We have a deep and integrated scenariobased approach that helps us to plan for emerging situations.
Our focus on balance-sheet management is a core philosophy. We have prepaid ~5,800 crore of principal debt in Q1. We are aiming to replicate FY21'S deleveraging levels in FY22.
Even though Tata Steel Europe saw an improved quarter, it lagged peers. What kind of improvement in steel-to-raw material spreads is expected this quarter?
The underlying performance of Tata Steel in Europe was sequentially better. The revenue increase was broadly in line with the market. You have to adjust the product mix of peers when you compare.
Moreover, the revenues are dependent upon a mix of contracts versus spot. The 'felt spread' in the
OUR TARGET IS TO BE IN THE INVESTMENTGRADE METRICS"
WE ARE AIMING TO REPLICATE FY21'S DELEVERAGING LEVELS IN FY22"
financial statements of Tata Steel Europe will expand in the second and third quarter.
Your net debt to earnings before interest, tax, depreciation, and amortisation (Ebitda) is now down to 1.59x and you are guiding 2x. Is the headroom in anticipation of an acquisition? Will you be aggressive in your bids for Neelachal Ispat
Nigam or Rashtriya Ispat Nigam?
The guidance of 2x net debt to Ebitda was across cycles. This year, we will sharply improve the credit and balance-sheet metrics. Our target is to be in the investment-grade metrics. Tata Steel has a robust organic growth pipeline in India, which will be cost-competitive and value-accretive. We will, of course, evaluate and explore other forms of growth when the opportunity comes. Our approach will depend upon the underlying asset and the value it has to us.
You invested around ~40,000 crore in the last three years in acquisitions, but debt has come down to pre-acquisition level. When do you expect Tata Steel BSL and Tata Steel Long Products to be debt-free?
The integration management of both acquisitions was efficiently implemented and the focus on operational efficiency, cost, and cash flows were the key areas. We have prepaid the acquisition debt on a regular basis. Both companies will be net debtfree in the next couple of quarters.