Tata Steel aims to double return on capital

Tata Steel, the country's biggest steel-maker, said it aims to double its return on capital in the next four years by improving processes at the European factories, acquired through its $13 billion purchase of Corus in 2007.

The company is targeting a return of 30 per cent by 2012, compared with about 15 per cent now, Managing Director B Muthuraman said today in a telephone interview. He confirmed a Financial Times report today that Tata Steel plans to triple profit margin at its Corus unit in the next five years.

The forecasts from the company comes as a global recession prompts customers to delay purchases of homes and cars, lowering sales and prices of its products. Corus, set to idle one furnace each at its Scunthorpe, IJmuiden and Port Talbot plants, has said its crude steel output in the six months to March will be 30 per cent less than planned.

Tata Steel, slated to report second-quarter earnings including Corus on November 28, is coping with waning European demand. Corus plans to cut 400 jobs from its distribution division as the business has seen a significant decline in sales since September.

Return on invested capital is calculated as a company's earnings before interest, taxes and depreciation divided by total capital. It is a way to compare companies based on the competency of their management and the feasibility of their products.

Production cut
ArcelorMittal, the world's largest steelmaker, has said it will reduce production by as much as 35 per cent in the US and 30 per cent in Europe after prices tumbled.

Tata Steel plans to double its overall profit margin over the next five years, the Financial Times said in a report dated yesterday, citing Muthuraman.

Prices per tonne of steel will fall more than 10 per cent, or as much as Rs 4,000 ($80), by December, Tata Steel Chief Financial Officer Koushik Chatterjee said last month. Demand from makers of trucks and buses have fallen, while supplies to cars and other light vehicle have remained flat, he said.

Corus saved £300 million ($449 million) last year and expects to save another £300 million this year, Credit Suisse said in a report in February. That translates into a $60 a tonne in cost savings, or as much as a 7 per cent increase in margin, the brokerage said.

Tata Steel posted a better-than-expected 50 per cent increase in second-quarter profit, excluding Corus Group. Net income rose to Rs 1,790 crore from Rs 1,190 crore a year ago.

Sales rose 41 per cent to Rs 6,740 crore.