“We have consistently been reducing our footprint in the UK market and its contribution has dropped significantly in recent years,” he said. “We are not shying away from taking tough calls — we just do it differently.”
Tata Steel Europe’s loss in the June quarter widened to £654 million from a £371 million loss in the year earlier with the auditor warning that its ability to continue as a going concern was at risk.
Downplays Auditor Statement
This underlined the steel industry’s dire finances, a point highlighted by Tata Steel and group holding company Tata Sons. The impact of the Covid-19 pandemic will require Tata Steel Europe to access group company support in order to meet its obligations as they fall due. A UK government bailout plan, Project Birch, had been authorised by chancellor of the exchequer Rishi Sunak in May to rescue companies that are seen as strategically important. “The UK government is fully aware of the situation and we do not want to jump the gun since a dialogue is still on,” Narendran said.
“We have managed the business in Europe for a very long time and held on without financial support even during the previous two crises of 2008 and 2015.”
“This time around, it’s been a challenging situation,” Narendran admitted. “The UK government appreciates the fact that Tata Steel has been a significant contributor to their economy.”
He downplayed the auditor’s statement on the company’s financial condition.
“The auditor comment on Tata Steel Europe is just a comment and not a qualification,” Narendran said. “While the seriousness of the situation is not lost on anyone, it is also a complicated decision. A transformation programme is underway at Tata Steel Europe and the focus has been to make it cash neutral. The focus is on strengthening the balance sheet and we have been vocal that Europe needs to stand on its own.”
As part of this, capacity has been cut to 10 million tonnes from 18 million tonnes and employees slashed to 20,000 from 28,000. The business has been largely restructured and the TSE leadership team has cut costs with the support of local employees, Narendran said.
Parent Tata Steel is focused on cost optimisation, debt reduction and allocating growth capital to the India market, which has begun showing signs of recovery.
“I think the worst is behind us and market recovery in September has been better than August,” he said. “We are seeing a revival in demand in Q2 led by good monsoons and positive activity in the rural economy. Our production is running at 100% capacity and we are now less dependent on exports than we were in the first quarter.”
Narendran said India is a priority market because it is cash positive, profitable and growing. In a challenging business environment, operating businesses have not added to net debt, he said. Structurally, Tata Steel is expanding the India business and further growth will take place at the Kalinganagar plant. “We will allocate growth capital to ensure expansions when the recovery begins,” he said. “We also allocate capital to mining, which is also an important part of our business.”
The contribution to overall revenue from Tata Steel Europe has been declining while that from the India business has quadrupled over the past decade or so, he said. Tata Steel’s debt burden is another key concern. On a consolidated level, net debt on March 31 was ₹1.05 lakh crore against ₹94,879 crore a year earlier.
“We are committed to reducing the overall debt to ebidta on our balance sheet and our target has been to reduce $1 billion a year. This year that could be affected owing to the pandemic,” he said. “Operational costs have been significantly slashed and capex being allocated is 50% of last year. We are deleveraging our balance sheet and focusing on essential spends and maintenance. In a fairly challenging market, operating business has not added to the net debt.”
Narendran said the overall business forecast for September is better than what it was in August and July. “We are seeing a positive demand in the rural markets for tractors followed by motorbikes, which are already at pre-Covid levels,” he said.
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10 Comments on this Story
Mahila Utthan39 days ago
Ratan Tata, Vijay Mallya,Lakshmi Mittal, Anil Ambani and others have been victims of the "India Shining" era when the Indian economy was supposed to grow at 10% till 2050. Foolish investments have been done.
Kamini Mehta40 days ago
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Sasi Kumar40 days ago
It seems Ratan Tata's two main actions were blunders first the acquisition of British steel firm next is launching of 'Nano'; both did much damage to the firm. cut off that aching arm and play India games like Ambani.