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Tata Steel is in a much better place; we can grow and deleverage at the same time: TV Narendran.


Date: 05-05-2022
Subject: Tata Steel is in a much better place; we can grow and deleverage at the same time: TV Narendran
“We want to double our capacity over the next 10 years. We need to make sure that we keep aside money for growth because the growth in India is very value accretive. Our dividend payout has factored that in. We are trying to be as generous as possible with our shareholders while at the same time focussing on creating long-term value for them,” says TV Narendran, CEO & MD, Tata Steel.

It has been a fantastic financial year for you. I will not be wrong if I say that for Tatas, for the year gone by steel was the new gold!

Yes it has been a great year for us. What is even more satisfying is it has been a good performance both in Europe and in India.

How much of the uptick which the steel industry has experienced in FY22 will get challenged by energy shock, demand and high inflation?

We are in a volatile space. Our input costs are fluctuating. Inflation is an issue globally. Interest rates are going up. We are a capital intensive industry. But having said that, structurally the industry is in a much better place than in the past. From a discipline point of view, there is very little excess capacity going around. It is becoming more regional and a local trade issue.

Exports out of China are no longer a threat. Ukraine and Russia were big exporters and they are no longer in the market. So for multiple reasons, the demand-supply is far better balanced. The governments’ focus on infrastructure spending across the world is good for steel demand. Even if this war gets sorted out, there will be reconstruction. Europe is going to spend a lot more on defence and it did in the past and there is a lot of investment happening in Europe and elsewhere around transformin ..

What is the plan in place to manage the volatility in coal prices? Tata Steel is still dependent on imported coal and given that A) there is a coal shortage for the power sector, there could be a challenge in terms of importing more coal for steel plants now.

The steel sector uses metallurgical coal which has always been imported because India does not have good quality metallurgical coal. Only 10% of the coal available in India is metallurgical coal and only a fraction of that is really coming to the steel plants. We are not dependent on domestic coal as much for our steel making and imported coal has been volatile but now it has stabilised quite a bit. What is, of course, of concern to us is if the power outages impact our customers because steel p ..

Given that you are generating more free cash flow, you have also increased your dividend payout. Market would compare your dividend payout ratio with what other companies are doing globally and what other Indian metal companies are doing. Do you see a change happening there because even though the dividend payout is significantly higher than what you have given in the past, it is significantly lower than what other metal companies are giving?
We have been a bit prudent because we have a lot of ambitions on growth in India. We want to double our capacity over the next 10 years. Globally metals and mining companies do not have the growth ambition that we have. We need to make sure that we keep aside money for growth because the growth in India is very value accretive. Our dividend payout has factored that in. We are trying to be as generous as possible with our shareholders while at the same time focussing on creating long-term value f ..

By the time your expansion of this leg – whether it is Neelachal or other capacities – start adding up, what would be the total planned capacity for Tata Steel in FY25?
The FTA with Australia is helpful because that removes a 2.5% duty that was there on the imports of metallurgical coal. When the FTA in some sense comes into play later this year, we will have that benefit. As far as Russian coal is concerned, we used to buy about 3 million tonnes of coal out of Russia, largely PCI which is pulverized coal that is injected into the blast furnace. It is a different type of coal but it is good quality PCI we used to import from there. We are no longer importing fr ..

Eventually, if things are back to normal with Russia, then of course we can look at continuing to import coal from Russia as well.

Last time you did indicate that you expect steel prices to remain volatile with the positive bias. Any change in that view? What is your view on the steel cycle per se?
We believe the spreads in Europe will continue to stay strong simply because Russian and Ukrainian steel is no longer available there, input costs have gone up in Europe because gas prices are high and also there are transition costs which European steel makers are incurring to transition into a greener future. So there is no motivation or incentive for European steel companies to operate at lower price levels and imports are no longer as big a threat as they were sometime back.

As far as India is concerned, we are quite bullish about demand in India and you know that is why we believe that the bias is still positive and strong. It will fluctuate but with the positive bias, we are optimistic and confident about the margins for the industry and for Tata Steel.

Source Name:-Economic Times



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