Don't need to look for assets after NINL buy: Tata Steel's TV Narendran

In a Q&A Tata Steel CEO and MD T V Narendran talks about what the acquisition means for the company's growth ambitions as also the near-term outlook

Close on the heels of its subsidiary Tata Steel Long Products being selected as the winning bidder for Neelachal Ispat Nigam (NINL), Tata Steel reported yet another quarter of strong financial performance. In an interview, Tata Steel Chief Executive Officer and Managing Director T V Narendran tells Ishita Ayan Dutt what the acquisition means for the company’s growth ambitions as also the near-term outlook. Edited excerpts:

You have already outlined an additional 4.5 million tonnes (MT) capacity expansion for NINL. What kind of investment would that entail?

We will come out with the numbers once we have fully assessed the assets. We have done the diligence at bid, but we need to go in there and do a full detailed assessment because some existing assets have not been running for the last few years.

But it will cost less than the typical expansion because a lot of infrastructure is already there. Also, these are long products, so costs are a bit lower than for flat products.

What are the advantages of NINL’s proximity to your Kaliganagar facility?

We have about 3,500 acres in Kaliganagar and 2,500 acres in Neelachal. So between these two, we can build a 25 MT complex that gives us enormous scale advantages.

But some analysts believe NINL was an expensive acquisition. How would you respond?

We bought Usha Martin for Rs 4,500 crore. That was of similar capacity but had 100 acres. Here (NINL), we are getting 2,500 acres and to acquire land in that place would have taken five years. We are also getting 100 MT of iron ore without the premiums that one would pay in an auction.

You had a target of 40 MT capacity by FY30. What does the NINL acquisition mean for your expansion plan?

NINL brings to the table another optionality. Today, the optionality has gone up to 45 MT. Then, in addition, we are looking at smaller units in scrap recycling in the north, west and south. So it allows us to pace our growth with multiple options in the most optimal way.

What kind of capacity is Tata Steel looking at by FY25?

By FY25, Kaliganagar (second phase) would have started. That means the capacity would be about 25 MT. Plus, we are hoping to have at least one scrap based recycling facility. If I include Neelachal, capacity by FY25 may be 27-28 MT.

Is there a possibility that you may look at merging Tata Steel and Tata Steel Long Products?

We will take that call at an appropriate time. But there is a business case which is building up because of changes in the Mines and Minerals (Development and Regulation) Act.

There might be other opportunities like RINL, which is in long products, and NMDC’s steel plant. Would you look at further acquisitions?

I don’t think we will be looking at NMDC’s steel plant because that’s flat products and we already have enough plans for flat products.

Even in long products, with Neelachal, we are no longer under pressure to look for more assets. The existing sites can take us to 45-50 MT, which is what we need in the next 10 years. So, we will take a call based on what the situation is whenever these assets come up. But we are no longer under any pressure to pursue any of these opportunities to meet our growth ambitions.

Quarter-on-quarter steel prices moderated and profits dipped. Do you see higher or lower Ebitda per tonne in Q4?

In India, the Ebitda per tonne will be lower; in Europe, it will not be lower. But volumes will be higher than Q3. There is an Ebitda per tonne squeeze, which will be offset to some extent by the volume increase.

In Europe, the Ebitda per tonne need not go down because the prices have been renegotiated for the auto and packaging contracts which are quite good and better than the spot prices. So that allows us a buffer.

Secondly, in Europe while coking coal prices have been going up, iron ore prices have been down. So there is a benefit in Europe which is not there in India.

Overall, there will be lower Ebitda per tonne on a consolidated basis, but higher volumes.

Q2 saw record profits, is this the best year for Tata Steel?

By far. If I look at three quarters, it’s already the best year.

Europe appears to have turned the corner. Is divestment off the table?

At this point in time, we are not looking at it. Three years back, the compulsions were high debt and the European businesses were not able to stand on their own.

Today, it’s self-sufficient and generating enough cash to take its transition into green. Our debt has been brought down from around Rs 1.04 trillion to Rs 62,000 crore in the last two years. And Europe also helps us plan our transition to green in India.