Structurally India is a better place to produce steel: Tata Steel CEO & MD

Tata Steel chief executive officer & managing director, T V Narendran
Well ensconced in India, Tata Steel chief executive officer & managing director, T V Narendran, is unperturbed by the potential entry of ArcelorMittal. In an interview with Ishita Ayan Dutt, he says that the entry of quality players will benefit the industry. Fifty-eight per cent of the company's revenues in the September quarter was from India operations; in Southeast Asia, however, all options are being considered, including an exit or joint venture. Edited excerpts:

Having crossed earnings before interest, taxes, depreciation, and amortisation (Ebitda) of Rs 10,000 per tonne, Bhushan Steel will look at aligning with peers like JSW and Jindal Steel and Power (JSPL). Is there a timeline? What kind of capital expenditure (capex) would it entail?

It will not require much capex as Bhushan Steel is an asset that was ready to go. This was one the reasons we were attracted to it. The capex is more for some of the underspend on maintenance.

Last quarter, Bhushan’s Ebitda was Rs 10,200 per tonne. If you look at JSW, JSPL, they are at Rs 12,000-13,000 a tonne. As we get the volumes up, the gap will narrow. Some of the other actions on synergies will also help.

For instance, coal procurement is now done jointly with Tata Steel group. So, we were a buyer of 15 million tonnes (mt) of coal. If you add Bhushan, it’s almost 18-19 mt of coal. That gives us a lot of leverage in the market.

Additionally, we get leverage in chartering of vessels. We have also taken a number of initiatives in marketing and sales to follow practices that Tata Steel follows.

As a first step, this is a journey of bridging the gap between Bhushan Steel and its peers. The next step is to see how much of the gap between Jamshedpur, Kalinganagar, and Bhushan Steel can be bridged.

It will not be possible to bridge it 100 per cent because Jamshedpur and Kalinganagar have the advantage of 100 per cent ore and 30 per cent coal. The power cost in Bhushan is also quite high. That’s why we have bid for Bhushan Energy, which is also in the National Company Law Tribunal.

Can you put a value on the synergies?

We are running an improvement programme where we have identified almost Rs 20 billion of value to unlock projects. Before we took over, Bhushan Steel’s Ebitda was Rs 28 billion. Our whole objective is to take it to a level of Rs 60 billion.

For the joint venture (JV) with Thyssenkrupp, the EU Commission is now in the second phase of investigation. When do you see this complete?

Normally, in Stage 2, it takes 90 working days, which would be end of February or early March. It was expected to go to Phase 2. It was not expected that such a big merger would be cleared in Phase 1.

Since you acquired Corus, the volumes in India and Europe have reversed...

When we acquired Corus, it was 18 mt; India was at 4 mt and Southeast Asia at 2 mt. Of the 24 mt, 18 mt was Europe. But if we look at the last quarter, almost 17 mt of the 29 mt will be India, 2 mt in Southeast Asia, and 10 mt in Europe. Of the 18 mt in Europe, the Netherlands accounted for 8 mt and the UK for 10 mt. Now, the UK has come down to 3 mt. The UK business was struggling. With that having shrunk, the overall performance of Europe has improved.

India, on the other hand, has expanded. If you see this quarter’s results, 58 per cent of the revenue is from India. The India business is structurally much stronger. While Jamshedpur and Kalinganagar have an Ebitda margin of 34 per cent, Bhushan Steel had a 20 per cent Ebitda margin.

In Europe, we are at an 8 per cent Ebitda margin. But that has nothing to do with our European colleagues. It’s just that structurally India is a better place to produce steel.

Factoring in Bhushan, what kind of raw material security would you have?

The challenge for us would be to increase raw material production. All the leases are available with us till 2030. That was one of the fundamental reasons why we bid for Bhushan rather than Essar. Bhushan is in the east. We can leverage the fact that we have raw material.

We have environmental clearances till 38 mt. Currently, we are producing 25 mt, but developing a mine takes a couple of years. But, over the next 10 years, we expect to go from 25 mt to 45 mt.

What kind of investment would that require? What kind of capacity do you envisage?

Over 10 years, the investment could be Rs 60-70 billion and across Jamshedpur, Kalinganagar, and Usha Martin, the steel capacity would probably be 24-25 mt.

But the challenge is partly in mining, and partly in logistics. We are also looking at slurry pipelines. Right now, we are working on Noamundi to Jamshedpur. But Bhushan already has some permission. We are also looking at Joda to Angul. These could entail an investment of Rs 10 billion.

What kind of an outcome are you looking at for Southeast Asia?

We are looking at all possibilities. We take taking a call depending on the value we get.

Are you looking at an exit?

We are looking at all possibilities. There are people who are interested to buy us out. There are people who are interested to have us as a JV partner.

Do you see market dynamics changing if ArcelorMittal finally enters India?

If the quality of competition improves, everyone is on their toes. But, I think, it’s good for the industry. If you have more quality players in the industry, the industry also attracts more talent. There is a larger benefit.

But ArcelorMittal has a partnership with Nippon Steel and you have a JV with Nippon Steel. How is that going to play out?

With Nippon Steel, the JV is focused on continuous annealing products for the auto industry. In Essar, they don’t make continuous annealing steel. So there is no direct conflict.

You have Bhushan Steel at one end of the spectrum, and Bhushan Power at the other. How would you sum up your Insolvency and Bankruptcy Code experience?

When we went into the journey, the No. 1 asset that we wanted was Bhushan Steel. Not only have we got it, the integration has gone well. The asset that we wanted second was Electrosteel because that was long products and also in Jharkhand. We didn’t get it. But we respected the outcome.

Since then everything seems to have got vitiated. If value maximisation is more important than the process then the next time there is a last date, I may not put in my best bid because I can always bid later.

If we knew that we could go on negotiating in Bhushan Steel, we may not have bid Rs 350 billion. Maybe we would have bid Rs 320 billion and got it at that, if our competitor had bid at Rs 300 billion. Value maximisation works, if you have a well-defined process, otherwise everyone is hedging their bets.

But, we are happy to take Bhushan Power at the price that we bid.

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