Moneycontrol PRO

Tata Steel to pare debt by $1 billion a year, expansion to be India centric

The steelmaker’s capex plan, around Rs 10,000 crore-Rs 12,000 crore a year, would be mostly India centric.

June 29, 2022 / 08:52 AM IST
The management of Tata Steel at its 115th Annual General Meeting on June 28, 2022.

The management of Tata Steel at its 115th Annual General Meeting on June 28, 2022.

 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

Tata Steel Ltd will continue to reduce debt by around $ 1 billion a year but the company does not aim to reduce it to net debt zero levels given its expansion plans, Chairman N Chandrasekaran told shareholders at the company’s 115th Annual General Meeting on June 28.

The company aims to spend Rs 10,000 crore-Rs 12,000 crore a year on capital expenditure going ahead, but may spend more if an acquisition opportunity arises, he said. The capex would be focused on India, and the company has no plans to spend more on adding capacity at its overseas plants. 

“The main thing is to have the right capital structure, and not blindly go for zero debt. Currently our debt to equity ratio and the debt to EBITDA ratio are both less than one. The company has a capital structure which is very strong and taking to zero debt can make the company's capital structure inefficient,” said Chandrasekaran. 

This was Chandrasekaran’s first Tata Steel AGM after he was reappointed as the Tata Group's chairman for a second term of five years in February. 

DELEVERAGING 

Close

The Tata Steel chief said that the company will continue to to deleverage to maintain the key ratios at comfortable levels.  

“We will continue to reduce the debt because we know that the EBITDA level may not be at this level always. But with the capacity expansion that we are currently planning, the company is comfortable to create a good level of EBITDA. So we will continue to reduce the debt but the intent is not to take it to zero debt,” he said. 

Tata Steel’s gross debt stood at Rs 75,561 crore at the end of fiscal 2021-22 after the company repaid a debt of Rs 15,232 crore during the year. The company has a stated strategy of reducing debt by $ 1 billion (around Rs 7,896 crore) every year. 

“We reduce it (debt) by $1 billion certainly, and probably more. We have a target towards which we are going but we will calibrate the target as we continue to expand,” Chandrasekaran said. 

CAPEX

The steelmaker’s capex plan, around Rs 10,000 crore-Rs 12,000 crore a year, would be mostly India centric. 

“Europe and the UK will be capped; we have no additional plans of expansion in this market. Our plan for expansion is in India. We are set to go from 20 million tonnes to 30-40 million tonnes,” Chandrasekaran said.

The company’s ongoing expansion plans at the Kalinganagar and Angul plants will take the capacity to 25 million tonnes. The company will also undertake organic expansion at its recently acquired Neelachal Ispat Nigam Ltd (NINL) plant to increase the capacity to 1.1 million tonne per annum within the next one year. 

“Our capital expenditure plan per year is a minimum of Rs 10,000 crores to Rs 12,000 crore; we are looking at this capex primarily because it's difficult to execute and build more capacity in a year, that's what our experience shows. But otherwise, we definitely want to expand faster and reach our targets of 30 and 40 million tons,” he said. 

The company said that the growth plan would continue to be governed by the demand forecast, size of business opportunity, scope for enhancements in the product portfolio and overall balance sheet impact, while aligning to the changing regulatory imperatives.

RUSSIA-UKRAINE IMPACT

The Chairman said that while 2022 started on expectations of a year of high growth, the Russia-Ukraine war and the resulting geopolitical tensions and trade disruptions have led to rising commodity and energy prices and supply shortages globally. 

As commodity and energy prices remained elevated, the global inflation surged beyond 7.5 percent, indicating stagflationary headwinds which are expected to dampen global GDP this year, he said. 

“The Russia situation has definitely increased the fight in the market and the steel price in Europe is quite strong. For that reason, the new contracts that the UK entity and Europe entity have entered into are quite attractive. The EBITDA and cash level performance of the Europe and UK entity is expected to be stronger this year than all the previous years,” he said. 

He also said that Tata Steel has not been sourcing coal from Russia since it made a statement to that effect on April 20; it is sourcing additional coal from Australia.
Rachita Prasad heads Moneycontrol’s coverage of conventional and new energy, and infrastructure sectors. Rachita is passionate about energy transition and the global efforts against climate change, with special focus on India. Before joining Moneycontrol, she was an Assistant Editor at The Economic Times, where she wrote for the paper for over a decade and was a host on their podcast. Contact: rachita.prasad@nw18.com
first published: Jun 28, 2022 08:29 pm
Sections
ISO 27001 - BSI Assurance Mark