Tata Steel’s net debt to EBITDA will be less than 1 by the end of fiscal 22: TV Narendran, Managing Director and CEO

TV Narendran, Managing Director and CEO of Tata Steel, talks about second quarter FY22 figures, steel price trend, FY22 forecast, raw material prices, margins, the situation of net debt, international business, organic and inorganic growth opportunities as well as investments, among others, in an exclusive interview with Zee Business editor Swati Khandelwal. Edited excerpts:

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Q: Summarize the numbers Q2FY22 and what’s your take on the same? Can you also tell us about your future prospects?

A: I think the performance was more or less in line with our guidelines. We had a good quarter. It was a tough quarter, if you look at steel consumption in India actually declined 2.50% quarter over quarter and our sales increased 11%. So we have been quite successful in India. In Europe, there was a disappointment in Q1FY22 because our spreads were not very good over the period but we doubled our EBITDA in Q2FY22. We will continue to do well in Europe. Overall, this is a good performance both in India and in Europe. I think the best is not yet behind us and we can see more good quarterbacks.

Q: Steel prices have fallen to their lowest point in 5 to 8 months. Do you expect prices to pick up and will Tata Steel cut prices in the near term?

A: In the last six months we have been more influenced by international prices. Most of the steel companies were exporting from India because Indian demand had not increased so much. But we see that Indian demand starts to come back quite strongly after the festival. The government’s emphasis on infrastructure is also positive. The auto industry is still struggling with the semiconductor problem, but we are seeing a recovery in commercial vehicles. So we think the best is not yet behind us, I mean the Indian market is still growing, it is still at the start of the recovery from the pandemic. It has come back strong and I am positive about the opportunities in the Indian market. In Europe, we have new contracts coming up. Thus, you will have more price stability in the future due to the new contracts and the new prices which will start from this quarter and the following quarter. Overall we are reasonably positive, yes there will be volatility, we are seeing what is happening in China and the effect of COVID as its cases are increasing in Europe as well as China. These are challenges, there will be challenges, there will be risks, but the fundamentals are still quite good.

Q: The prices of coking carbon and graphite electrodes are skyrocketing. What is the outlook for raw material costs and company margins in the future?

A: Coking coal prices are still quite high for India. I think it’s around $ 400, in China the coking coal prices are around $ 550-600 because China doesn’t buy it from Australia, they buy it from Mongolia, from Russia or the United States. We expect coking coal prices to be higher and to be in the $ 350- $ 400 range as the supply is very tight, not too many options for good coking coal. Iron ore prices have stabilized, we would expect it to be around $ 100, at the moment it is below $ 100 but it should be in the range of $ 80 to $ 120. Regarding the rest consumables, a lot of consumables that come from China the prices will keep going up because China is reducing production, it’s very strict on environmental controls, therefore, a lot of consumables that we get from China than it is refractories, magnesium and many other consumables including graphite electrodes etc., the prices are increasing. That is why we believe that steel prices will also stay on the rise because input costs will not fall.

Q: On the financial side of the business, we have seen that there has been a significant reduction in debt and that the net debt stands at Rs 68,860 crore. What will be the orientations for exercise 23?

A: We will continue to reduce our debt through our operating cash flow as well as over the next few quarters we hope to get some working capital out of it as well. The forecasts we give are by the end of the year, we are certain that the net debt on EBITDA will be less than 1.

Q: The company has sold a stake in NatSteel’s holdings. The Port Talbot plant has experienced an impressive turnaround. Are you still exploring a deal to go out?

A: In the case of Europe, as we also said two years ago, our aim is to run the business autonomously. His first step was to split the business and we split the business in the UK and the Netherlands. So there is a more precise focus because the challenges are different in the two areas. Business in the Netherlands has traditionally been positive EBITDA and positive cash flow and we will continue to be. UK activity has not been consistently positive in terms of EBITDA and cash. If you take a look, in the first half we are positive in EBITDA and by the end of the year we will definitely be in positive cash. So overall, Europe is also performing well.

Q: As you said India is quite dynamic because good demand is visible here. So, are you eagerly awaiting the opportunities you are looking for in the market, perhaps on the PSU front or some of the steel companies that are for sale? Is there something that you are studying closely to further strengthen the business in India?

A: When it comes to Indian business for flag products, we have enough opportunities for organic growth from our existing locations. If you look at both the Kalinganagar and the Angul, we can expand here. By biological means alone, we can go from the current 20 million tonnes to 35 million tonnes in India. We also have plans for growth through recycling and we are setting up the first facility in the North. Then comes the privatization, the auctions, which are there but in that we will see its value. We will focus more on long produced assets. Right now the NINL process is underway and we are reviewing it. Then in RNIL as the process unfolds we will rate it very carefully and then take a call because there are options for organic growth as well. So we will basically look at the right value and then decide.

Q: What would the Capex be for the next 1-2 years?

A: We have already provided advice of around Rs 10,000 to 12,000 crore as an annual CapEx and if you take a look we have spent around Rs 4,000 crore (Rs 3,600 crore). So we are on a track for Rs 10,000 to 12,000 crore. I think this is a good CapEx to spend without compromising or reducing our goals, while achieving the growth ambitions we have.

Ann J. Cox