Status quo is not an option for Tata Steel UK: MD, TV Narendran

If better fiscal support from Westminster for upgrading Tata Steel’s assets in the country doesn't come through quickly, Asia's oldest manufacturer of the alloy may have to pull the plug on its UK operations, TV Narendran, managing director, tells Nikita Periwal and Nehal Chaliawala.
The Rishi Sunak led government’s earlier proposal barely covered a fifth of the estimated capital cost required at Port Talbot steelworks, Narendran said.

The company's European operations continued to be a drag on its consolidated financials. Narendran expects European operations to remain under pressure in Q1 before picking up from Q2.

Edited excerpts:

How have your negotiations with the UK Government progressed since you refused its earlier proposal in January?
We are in conversation but as of now it is status quo. But there is only a finite amount of time which is available. So, status quo is not an option. Somewhere the penny will drop. Let's see how the conversations with the government go or else in the next 12 to 24 months, we will take whatever calls we have to take.

The proposal the UK Government gave is very short of what we have sought. Without getting specifically into the numbers, our request was for 50% of the capex (capital expenditure) that is required and some opex (operational expenditure) support because the energy costs in the UK are much higher than in Europe. They have given us a proposal which is less than 25% of the cost; I would say 20% of the cost.

How would you review the performance in Q4?
The India Business has done well. We struggled last year because of the export duty. That got lifted in November, which opened up the export market. That also coincided with China stepping back from the COVID restrictions. So the overall sentiment in the steel industry changed and hence you saw in Jan-March quarter the domestic prices went up as international prices went up, and you could export all the excess inventory in the system. So that's why the Indian numbers have been good.

As far as Europe is concerned, the struggle is there for two reasons. One is you're struggling with demand compression because of the Ukraine war, the high energy prices and its impact on downstream industry. And for us, particularly, we were preparing for a blast furnace relining in Netherlands, which has been our best performing European asset. So we were building up some stock so the working capital in Europe was also higher than what we traditionally had. So Europe numbers in Q4 are not much better than Q3. We expect Q1 to be slightly better but still in the negative terrain, because of blast furnace in Netherlands is down and it will resume in August.

I expect Europe to have a challenging Q1, maybe slightly better than Q4 (FY23). And we'll start getting better from

You missed your $1 billion debt reduction target in FY23. What is your target for FY24?
As far as debt is concerned, we have reduced it by about Rs 3,300 crores in Q4. We said we will reduce debt by $1 billion a year but last year was probably the first time we did not do it. But on average, we have reduced more than $1 billion each year on an average. This year (FY24) we are back to that commitment. We believe that even with the Rs 16,000 crore capex that is planned, we can still reduce our debt by a billion dollars.

Last year, there were two reasons for missing the target. One is of course that we acquired Neelachal Ispat and Rohit Ferro etc, which cost us about Rs 10,000-12,000 crore. And then the working capital. And then export duty, higher gas prices, and margins were compressed. So that’s the reason.

Several assets are coming up in the market. What is on your radar?
I think we don’t need to look at anything because the existing sites can take us to 40-45 million tonnes (a year). When we acquired Neelachal, at that time we were keen to have a site for long products. Now we are well set, we can take Neelachal to 10 million tonnes, Kalinganagar to 15-16 million tonnes, Bhushan to 10 million tonnes. With these three sites in Odisha alone, I can go to 35 million tonnes, and Jamshedpur is 11 million tonnes.

In addition, we are building (an electric arc furnace) in Punjab, so if that model works, we can build more such plants in Gujarat or wherever scrap steel is available near industrial areas. So I think we don’t really need any assets to fulfil our aspirations. And these kind of brownfield projects help us pace ourselves also because we can pace our capex and our growth depending on our appetite.

How do you see the business environment in light of the government capex? Are you also seeing private capex picking up?
Private sector capex is certainly picking up. Look at the steel industry for instance. We are ourselves spending Rs 12,000 crore in India, and similarly if you look at JSW and everybody else, they are also investing. Similarly in many other industries. Demand at a fundamental level is strong. Automobiles are very strong - commercial vehicles, tractors, passenger vehicles. Two-wheelers are the only one lagging, motorcycles, particularly, but that is also coming closer to their FY19 levels.

Construction is doing well across industrial, commercial, residential and infrastructure – infrastructure is the strongest. Railways is also spending a lot. So, overall government-led infrastructure is driving it, but there is also a lot of private sector coming in logistics, supply chains, industrial warehouses, and things like that. And of course, electronics manufacturing.