'When you look at reviving private sector capex, I don't think there's a better story than steel.'
Tata Steel has a lot on its plate -- restructuring the business in the United Kingdom, expanding capacity back home, and keeping an eye on the balance sheet.
"On a year-on-year basis, we expect Ebitda per tonne in India to be reasonably flat but the volumes higher," Tata Steel Managing Director and CEO T V Narendran tells Ishita Ayan Dutt/Business Standard in a video interview.
Steel spot spreads have improved and the blast furnace relining in The Netherlands, which was dragging the performance, is complete. Do you expect a better Q1?
The blast furnace in The Netherlands went on stream only in the first week of February. So we didn't have the full quarter of supplies.
To that extent The Netherlands Q1 will be better than Q4.
The UK will not be because it had a one-off benefit of about £50 million, which will not be there.
In India, we expect Ebitda (earnings before interest, tax, depreciation and amortisation) per tonne to be a little lower though the spreads have improved a bit because it's a quarter where we have a lot of shutdowns.
So the volumes in Q1 will be less and hence the fixed cost gets distributed over a smaller volume.
On a year-on-year basis, we expect Ebitda per tonne in India to be reasonably flat but the volumes higher. We will have 1.4 million tonnes net addition.
In The Netherlands, Ebitda should be much better.
In the UK, it will be negative but less than last year because the second half of the year will be Ebitda neutral or Ebitda positive. So overall, for Tata Steel, it will be better than last year.
What is the status of the grant-funding agreement with the UK government?
There were many finer points which were being worked out and now it is concluded.
It's gone to the government, which will run through the process to approve it. We are in the final stages of it.
With the UK headed for general elections, is there any risk to the agreement?
We don't see that as a derailing factor. The closure of the heavy end is irrespective of who is in power simply because the assets have become end-of-life.
You are investing £750 million in the UK project over and above the restructuring cost. Will that impact expansion plans in India?
The money needs to be spent over three-four years. So we don't expect that to derail growth plans in India.
We must not forget that a lot of the support has been given to Europe when Tata Steel was much smaller.
When we acquired Corus, we were 4 million tonnes (mt).
Now we are 20 mt and going to 25 mt. So the India business, which generates all the cash, is getting bigger. And the UK, which was in some sense, drawing in the cash was 10 mt and is now 3 mt. So supporting the UK on a lower magnitude is easier than in the past.
IMAGE: T V Narendran.
Photograph: Kind courtesy Tata Group
So where do we see Tata Steel in terms of capacity in the next two to three years?
The Kalinganagar unit will have fully expanded and the Ludhiana plant will be ready.
Bhushan Steel will go from 5 mt to 7 mt, Kalinganagar from 8 mt to 13 mt, and Neelachal from 1 mt to 5 mt. And if we find the operating model working in Ludhiana, we can quickly set up another two-three electric arc furnaces.
So we may not complete all the expansion of 40 mt by 2030, but we will be well on our way at all the sites.
Will imports into India weigh on expansion plans?
Not yet, but if it sustains for another six months or so, it will hurt the domestic industry.
When you look at reviving private sector capex, I don't think there's a better story than steel. Each is spending Rs 10,000 crore to Rs 10,000 crore to Rs 15,000 crore (Rs 100 billion to Rs 150 billion) a year to expand.
What is your capex for FY25?
About Rs 17,000 crore (Rs 170 billion), of which around 75 per cent will be in India.
Feature Presentation: Rajesh Alva/Rediff.com
