May 17, 2017 05:38 PM IST | Source: CNBC-TV18

To pursue aggressive India growth; focus on domestic expansions in FY18: Tata Steel

We will pursue an aggressive growth path in India because India is a place where demand opportunity is going to grow, Koushik Chatterjee, ED (Finance and Corporate), Tata Steel.

Tata Steel posted stellar numbers for the fourth quarter of FY17 largely on the back of outperformance by operating profits.

The Tata Group firm narrowed its consolidated net loss to Rs 1,168 crore against a loss of Rs 3,042 crore posted during the same period last year. An exceptional loss of Rs 4,068.6 crore was posted by the firm.

Speaking about the outlook for the company going forward Koushik Chatterjee, ED (Finance and Corporate), Tata Steel said they are positive on India business and are hopeful of growth in demand. “Company will pursue aggressive growth in India,” he said.

The company plans to invest Rs 7000 crore for domestic expansion in FY18, he said in an interview to CNBC-TV18.

He also spoke on various developments happening in the UK business.

Below is the verbatim transcript of the interview.

Q: What is volume target for this year?

A: Our run rate in Kalingnagar is about 1,00,000 tonnes per month. So, we are almost at the threshold of the rated capacity as far as saleable steel is concerned in Kalinganagar. So, the debottlenecking will happen. It will be between 12.5 kind of range of volume for this year and that is what has been the target.

Q: If I look at a 2020 target, I am sure there is a vision that you have in mind in terms of the scability keeping in mind the organic and inorganic expansion that you can look at, what is the target there?

A: I would only say from a broader strategy perspective, the board and the company and all of us in the management are very clear that we will pursue an aggressive growth path in India because India is the market, India is a place where demand opportunity is going to grow. Building capacity takes time so we need to plan early. We are looking at a broader master print or rather a blueprint of the India footprint and when that detailing gets completed on the build capacity basis, we will also look at opportunities in the market outside. So as I said, fundamentally, I would not venture to give you a target, but aggressive growth in India is certainly something that we should look at.

Q: How much more investment are you looking at putting into the domestic expansion plans? Whatever timeline that you can give in terms of this year, immediate and what more is required in terms of scalability across Kalinganagar or Jamshedpur?

A: As I said, we are looking, detailing the master plan and that is the work that is going in the company. Tata Steel always had this DNA of debottlenecking. So, it actually is based on the quality of assets that we have because it is important for us to have a good kit to make good expansions in the future. So, that foundation, the infrastructure, the logistics, all of that is part of that master plan and between the two sites, Kalinganagar, needless to say has a land to grow and therefore it can.

Q: And you are reaching Phase-II now, right?

A: Yes. So, I do not think our aspirations will perhaps stop in Phase-II only because if India grows and if what the government has come out with, the National Steel Policy, if that is the demand growth in the future, we will certainly be up to it in terms of our growth plans.

Q: The investment or capital expenditure (Capex) set aside for FY18?

A: This year, we had about Rs 6,000 crore of Capex and there are investments in subs and joint ventures (JV), etc. We are looking at about maybe Rs 7,000 crore because there has been a re-phasing of some of the Capex. So, that is broadly the quantum. This Rs 7,000 crore is all across.

Q: A lot has changed in the last few years, so where do things stand as far as your view on Europe is right now? What is the turnaround strategy that you have in mind? Take me through that and then we can go into the pension bit.

A: As far as Europe is concerned, the risk elements of Europe emanated largely from the market. Post the financial crisis, there was a significant drop or reduction in the structural demand, specifically because some sectors like construction were deeply impacted, the liquidity in the system was not there and so on.

And, to be fair, over the last six years, we have constantly restructured the asset profile and the footprint in Europe. 2015-2016 was possibly the worst year from a market perspective all across the world in the steel industry, but Europe and more specifically, UK was deeply impacted. We had issues relating to imports coming in at very low rates, prices. We had a currency which was appreciating. We had issues in relation to the demand locally in UK and in Europe.

So, it was a convergence of all the tail risks that one can consider. When those kinds of things happen, you normally get pushed to the wall and that is what had happened. So, we had broadly pursued two fundamental strategies. One is at the operating level. We have to increase our self-help through internal processes and internal initiatives to a very high degree because what was okay for a spread of 240 is not okay for a spread of 196. Spread as in the spread between raw material prices and hot rolled prices. So, the spread actually narrowed very significantly. One of the lowest in the last 10 years or so.

Q: A quick clarification on the pension arrangement. 550 million pounds is the amount that you will be giving to the pensioners. Pensioners thereby, once it is completed and all the regulatory approvals come in will get 33 percent stake in Tata Steel, UK. Is this is the adjustment that you have done in this quarter? Is that a one-time and after this you will not be looking at this? That is question one.

The other point is by when do you expect because I believe the basis arrangement has been done, so by when you expect the final regulator approval to come in? Can there be a hiccup in that process or is it a pretty much done deal?

A: So, first clarification, the adjustment in this quarter, the January-March quarter is in non-cash adjustment which is a kind of a one-off because in September, 2015 we had actually a curtailment agreement with the employees in the union. And that curtailment agreement created a certain impact on the financial statements. A part of that, when you close the scheme which is what we have done from March 31, comes back into the accounts or the financial statements and that is the impact that we have at this point of time. So, this is one-off non-cash.

Second part which you mentioned was the 550 million pounds. That is a cash element which has not yet happened. It is something to happen.

Q: So, will that come in by next quarter then?

A: It depends on when the final sign-off happens because we are, as I mentioned yesterday, we have an in-principle agreement between the trustees and the company. In this case, the company is Tata Steel, UK which is a sponsor. This whole process of the regulated apportionment arrangement (RAA) is a regulator run process and the regulator needs to approve it and the pension lifeboat which is the Pension Protection Fund (PPF) needs to basically not object to it. That is the process currently on. It is done very positively, responsibly and we expect that that should happen soon.

Q: And the response has been good so far?

A: Absolutely.

Q: So, in the next few months, once that is completed, the conversations on JV, etc. will kick forward. I have to ask you this. I think I know your answer, but I am still going to try my luck. 33 percent is what will be promised to pensioners in Tata Steel, UK. There will be a JV as and when discussions go through. Net-net, by the end of the conversations, how much stake do you want to retain in Tata Steel, UK?

A: This 33 percent, I must clarify, is not a negotiated position. This 33 percent is a part of the published principles of the regulator for an RAA. If the same shareholder continues, there is a 33 percent which is to be given to the pension trustees or to the PPF, depending on how many people opt for either of the two, other side of the RAA. So, this 33 percent is not that we negotiated and they wanted 51 percent, we have given 33 percent or we wanted 10 percent and they are asking 33 percent. So, this is part of that.

The 67 percent is the one which continues with Tata Steel, Europe which is the parent of Tata Steel, UK and the arrangements and the terms are currently under discussion. But effectively, if there was any consolidation then Tata Steel's stake of 67 percent will be part of that consolidation, if it happens.

Q: But you want to remain a majority player?

A: As I said, if I were to offer 51 percent also, the regulated process will not take it. It is 33 percent by the published principles of the regulation.

Q: In terms of the JV partner now, are you done with rationalising the assets? For instance, would it make sense to look at niche asset sales further and where have conversations reached with respect to JV partners? Is it just Thyssenkrupp that you are talking to or are there other players involved as well?

A: It was very important for us, as I mentioned earlier, even when we did long products, is to on one side, the performance improvement, the structural competitiveness needs to be addressed which is one part of it, which is ongoing and will continue to go. And we need to make investments to ensure the footprint has better assets, better reliability and good products and customers.

As far as the larger strategic play is concerned, consolidation in a low growth or a mature market is always strategically looked at as an important element. So, to look at a larger consolidation and what is the benefit that we can derive out of this consolidation is a path that we have been looking at and it is from that perspective, we are looking at from an overall collaboration, co-operation or a merger or consolidation.

And today, our first part is focused on improvements. Second is derisking through the pension initiatives that we are doing and then, after we come to that then we will have to look at what next. And that is the part of the conversation. To be honest, everybody in Europe talked to everybody as to say what next for all of us.

Q: I believe that there is talk happening across all steel players right now.

A: That is exactly the point. There is a conversation because we need to find…

Q: So, it will take time. It has not reached a final stage. It will take time.

A: Absolutely.

Q: So, right now, your focus is on the rationalisation and completing the pension issue as well.

A: Absolutely because these are, you cannot put the cart before the horse. So, you have to go it in sequence.

Q: So, can I say a year's time?

A: I can use an Indian analogy that a good biryani needs time to be cooked. So, we should leave it at that and ensure that we get the pensions clarity first. We are almost there. The JV discussions are ongoing, we keep talking to everybody, what is the best form.

Q: How many players are you talking to right now?

A: I would not want to give a name on that.

Q: But Thyssenkrupp is one of them.

A: Yes, of course.

Q: It is not the only player?

A: No. Thyssenkrupp is certainly a very good operator as far as Europe is concerned.
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