High industry spread structural trend rather than cyclical: Tata Steel CFO

Koushik Chatterjee, executive director and chief financial officer, Tata Steel, tells Ishita Ayan Dutt that balance sheet strengthening continues to be an enterprise strategy

Tata Steel, a key beneficiary of booming steel prices, prioritised deleveraging and reduced net debt by Rs 29,309 crore in FY21. In an interview, Koushik Chatterjee, executive director and chief financial officer Tata Steel, tells Ishita Ayan Dutt that balance sheet strengthening continues to be an an enterprise strategy and debt reduction of $1 billion is the minimum standard, not the maximum potential. Edited excerpts:

Are the current steel-raw material spreads globally the best ever? Do you see this trend continuing?

The international market spreads are certainly getting to historical high. But one needs to put this in perspective as it is not just a cyclical effect.

Over the last few of quarters, we have been seeing structural trends shaping up in the industry. Primary among them is the supply shortage, as capacity rationalisation has come to focus on account of environment policies and emission standards especially in China, but also in Japan and the EU. This has created a supply constraint and this is likely to be a more structural trend than a cyclical event, as the Chinese capacities that are shutting down are unlikely to come back. With significant demand recovery underway globally, the industry spreads have widened sharply in the last couple of quarters and looks to remain elevated than the historical average in the near future.

Tata Steel recorded one of its best performances in the fourth quarter riding on surging steel prices, how do you see the next two quarters?

The global steel industry is witnessing strong momentum in demand and international steel prices have been reflecting the same. Directionally, other than any Covid-related unexpected disruptions, we would continue the performance trend in the coming quarters.

The European market is strong and Tata Steel Europe was EBITDA-positive in the fourth quarter, what is the outlook going forward?

The market spreads have started to improve materially in the last quarter and the same would start translating in the felt spread of Tata Steel in Europe in the coming quarters. The separation of the Netherlands and UK will also help us structurally take out costs, put sharper accountability on the local management for profitability and cash flows.

You have put off the sale of South East Asian (SEA) operations. Are you open to selling Europe?

We are currently not running any structured process as this point in time for either SEA or Europe. Currently we are looking at improved performances from both Europe and SEA. There will certainly be time and opportunity to relook at the strategic portfolio issues in the future.

In FY21, Tata Steel reduced net debt by Rs 29,390 crore, but the target for the current year has been kept at $1 billion. Why is that?

I would like to reiterate that our stated policy of de-leveraging is to reduce debt by at least $1 billion, i.e. Rs 7,500 crore per annum, and I would also highlight that the balance sheet strengthening continues to be an enterprise strategy. So to answer your question, the $1 billion annual reduction of debt is the minimum standard and not the maximum potential.

You have restarted growth capex. What kind of capex is required for Kalinganagar expansion and when do you expect to commission? You have submitted an EOI for Neelachal Ispat, would you look at NMDC’s steel plant?

We are allocating capital and resources to complete the Kalinganagar expansion in the next couple of years that will take the India capacity to 25 million tonne by 2025 including some de-bottlenecking of existing capacity. We also have a master plan for brownfield growth options that will get underway in due course. Beyond the organic growth, we will certainly look at evaluating all options for inorganic growth especially in long products as and when they come about.

Do you see the second Covid-19 wave impacting domestic business and can you offset with exports?

This is an evolving situation and we continue to track very closely. Nothing is more important today than to support in saving lives from the pandemic in the country. As part of our integrated risk management process, we continuously assess risks and opportunities of the situation very intensely and are confident that we will continue to deliver good business performance in the year ahead as much as we will work hard to help and support the community in the fight to overcome the effects of the pandemic.