Tata steel may not be able to live up to its target of “a billion-dollar debt reduction a year” for financial year 2023 as it factors in the market volatility, movements in cash flow, and working capital abilities. More so, as it takes on board acquisition of Neelachal Ispat Nigam Ltd (NINL) and cash flows on account of dividend pay-out. Earlier, the steel maker was aiming for growth without comprising on its deleveraging target. But now, there seems to be a slight shift in the stance keeping in mind the current market scenario.
Having said that, the company doesn’t intend to change its policy/ strategy around debt, just as yet, and would want to recalibrate on these numbers by the next quarter of the ongoing financial year, i.e. Q3 FY23.
Tata Steel Ltd on October 31 reported an 87 percent year-on-year (YoY) decline in consolidated profit after tax (PAT) at Rs 1,514 crore for the September quarter. Sequentially, the profit declined 80 percent. In a post earnings press call, the management of the company said that it remains certain that it won’t be able to reduce the quantum of debt by a billion dollars and end the ongoing financial year exactly at the similar levels as the previous one. The company’s gross debt stood at Rs 75,561 crore for financial year ended March 31, 2022.
Tata Steel reported nearly 6 percent sequential rise in its gross debt levels for the quarter ended September 30, 2022 at Rs 87,516 crore compared to Rs 82,597 crore reported for the June quarter of the similar financial year.
Tata Steel’s consolidated Gross Debt trend
(In Rs crore)
· Quarter Ended March 2022: Rs 75,561
· Quarter Ended June 2023: Rs 82,597
· Quarter September 2023: Rs 87,516
(Source: Tata Steel’s investor presentation)
“Deleveraging is no longer the most important thing for Tata Steel. It will happen as natural course as soon as we (Tata Steel) start generating free cash flows in excess of what we require,” said the company’s ED & CFO, Koushik Chatterjee, in a teleconference held for media after the company reported its Q2 numbers. “But we will be doing initiatives to see how we can work our way back to the levels seen at the start of the financial year.”
Tata Steel’s investor presentation suggests that “bunching up of large cash pay-outs of Rs 19,000 crore for Q2 on account of NINL acquisition, and FY22 dividend pay-out mainly led to rise of debt by September 30, 2022.
Replying to the query on debt asked by Moneycontrol, Tata Steel’s Managing Director (MD) TV Narendran, said, “The numbers are significantly higher in this quarter on account of dividend of Rs 6,290 crore, capex of nearly Rs 3,200 crore and acquisition cost of more than Rs 10,000 crore. Some working capital release should take place once high-cost inventory flows through the system.”
No brighter future for Europe in the offing?
Narendran doesn’t expect a better second half of the financial year for the European division. He expects margin compression even as the company continues to renegotiate the contract.
It also continues to engage in a dialogue with the new government in the UK as it seeks a relief package for the transition to green steel. The amount has not yet been disclosed by the management.
Also Read: Exclusive: Tata Steel clarifies on UK exit reports
It is to be noted that Tata Steel UK has asked for £1.5 billion for the transition to green energy. It plans to replace carbon-intensive blast furnaces with electric arc furnaces over the next few years.
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