Tata Steel trims capex, debt reduction plans as demand crimps
"During the September quarter, we repaid around 370 million euros and we will repay a similar amount in the early part of 2020. While we continue to work towards meeting the original target of reducing debt by USD 1 billion, but given the current ...
In May this year, the company, which has a gross debt of Rs 1.11 lakh crore as of end September, had announced plans to reduce the debt by another USD 1 billion and a capex plan of Rs 12,000 crore.
"During the September quarter, we repaid around 370 million euros and we will repay a similar amount in the early part of 2020. While we continue to work towards meeting the original target of reducing debt by USD 1 billion, but given the current market scenario we will have to relook at this target," chief financial officer Koushik Chatterjee told reporters on Wednesday while announcing the Q2 numbers, wherein it reported a 5.9 percent rise in net income, boosted by massive tax gains, but almost 17 percent dip in revenue.
After the plan to merge its European operations with Thyssenkrupp fell through earlier this year, which could have helped it reduce debt significantly, the company is focusing now on selling non-core assets and maintain free cash flows to service the debt, he said.
"We will not lose any opportunity to reduce gross debt. We are taking lots of steps to generate more internal capital and becoming profitable is one of such step. At the same time, we are also working on recalibrating our capex plans and managing our working capital," Chatterjee said.
The company had initially planned Rs 12,000 crore capex this fiscal, but has reduced it to around Rs 8,300 crore now. So far this year, the company has spent nearly Rs 4,900 crore, he added.
"We have a lot of work to do over the next six months. In Europe, we would look at containing debt. In a good year, USD 1 billion reduction looks feasible, but when you are in an unprecedented market with falling demand, arithmetically we may not reach that target, but we will look at all opportunities to reduce gross debt," Chatterjee added.
Its liquidity position stood at Rs 11,858 crore, comprising Rs 4,596 crore in cash/cash equivalents, and Rs 7,262 crore in undrawn bank lines. Gross debt stood at Rs 1,11,549 crore and net debt at Rs 1,06,952 crore.
During the quarter, the company has tied up USD 525 million in foreign currency loans which would help lengthen its debt maturity profile.
As a part of its capex recalibration plans, it has prioritised the cold roll mill complex and pellet plant in its Kalinganagar phase II expansion, which will allow for greater value addition and drive cost reduction, managing director TV Narendran said.
"We are also re-organizing our domestic footprint in four verticals to drive scale, synergies and simplification which will create additional value for our stakeholders," he said, adding to attain these objectives they are consolidating domestic subsidiaries into four verticals--long products, downstream, mining and infrastructure.
"The process is expected to be completed over the next six-nine months, subject to regulatory approvals. We have also begun the process of closing over 100 legal entities across the group and as of date, we have already filed for liquidation of over 50 entities," he said.
Besides, the company is also diversifying to non-auto segments like agriculture, railroads and lifting and excavation, he said.