Tata Steel's CapEx will be around Rs 10,000 crore in FY23: TV Narendran, MD & CEO

TV Narendran, MD & CEO, Tata Steel, talks about Q3FY22 numbers, higher coking coal and its impact on production cost, import duty, coal bed methane (CBM) gas experiment, pricing, net debt, Neelachal Ispat Nigam Limited, CapEx, acquisition plans and Neelachal Ispat Nigam Limited among others during an exclusive interview with Swati Khandelwal, Zee business.

Edited Excerpts:

Q: Please summarize the overall numbers of the third quarter (Q3FY22)?

A: It is true that the Q3FY22 performance was good. There have been many challenges because coking coal prices have been increasing. Steel prices started dropping in November-December. But we were benefitted as an auto contract in India were negotiated in the second half. Export markets, which we had booked earlier, we delivered those contracts at higher prices and were benefitted from it. In India, operations have 

been strong and in Europe, the performance has been okay, stable, and improving quarter-on-quarter. EBITDA has not improved quarter-on-quarter because the gas and energy cost has shot up much more than we had thought. In the coming days, you will continue to see an improvement in European performance. In Europe, we have renegotiated auto and marketing contracts and will see an impact from January.

Q: In your investors' presentation it was said that the higher coking coal has impacted production costs. How is the situation now and what kind of trends are visible?

A: In Q3, the cost impact has been around $80 per ton higher than Q2F and the Q3 impact will be around $40 per ton higher than Q3. In Europe, it has been around 80 Euros impact in Q3 and Q2 and will be about 40 Euros impact in Q4 over Q3. But we are getting benefits of iron ore in Europe as iron ore prices have been softer, so, Q3 to Q2, we had a 30 Euro per ton benefit and in Q4 to Q3 you will see another 30 Euros per ton benefit. So, it is a mixed impact of both iron ore and coal.

Q: Import duty has been reduced on many flat products in the budget. What impact will it happen in the future? 

A: The adjustments that have happened for coated steel, some of the highest steels etc. So, these are niche businesses and they are maybe a billion tonnes in the 100-120 billion tonnes market. I don't think that it will have any significant impact, of course, it will impact those, who are very active in coated steel but I don't think that it is so material if you have a look at the rest of the steel industry. As far as scrap is concerned, it has been extended in the budget and it is good for the smaller mills to import scrap.

Q: The company is experimenting with an injection of coal bed methane (CBM) gas. what kind of cost savings you are expecting from it? 

A: More than the cost, the main benefit will be because of the reduced carbon footprint. Because this CBM intake into the blast furnace is a complex activity. So, we have started it at a pilot level. Its advantage is that CBM is available in India, particularly in Eastern India. So, when India is trying to move away from coal in the blast furnaces then CBM becomes a good alternative and this is a reason we are focusing a lot on it. Overall, we are committed to bringing the carbon footprint down to less than 2 tonnes for Tata Steel by 2025 and 1.8 tonnes by 2030 in India. In Europe, we are already below these levels and Europe is already benchmarked in the world. And, in this decade, we will start moving more and more towards gas and hydrogen because hydrogen will be available there and hydrogen infrastructure is being built.

Q: What is your outlook for the pricing and what is the gap between imports and domestic prices and how close it can be in the coming time?

A: If you will have a look then even today it does not make any sense to import because import landed is Rs 3000-4000 higher than domestic prices in Bombay, so, imports are not really an issue yet. It is expected that the demand will continue to increase as demand improved in Q3 over Q2 and it is expected that it will continue to improve. Because the export markets, which were very strong in Q2 has softened in Q3, picking up a bit and it is expected that it will do good after the Chinese new year. So, overall, dynamic situation but we are very hopeful and optimistic that the Indian demand will continue to grow given the government's focus on infrastructure.

Q: What is your net debt at present and what would be the guidance? Also, what would be your CapEx for the coming financial year?

A: Today, the net debt stands around Rs 62,000 to 63,000 crore and we are well ahead of what we had guided. So, we will continue to reduce it and continue to deleverage. We are supposed to complete the transactions of Neelachal in this quarter, which will definitely have an impact. But without the transaction, the net debt would have continued to drop every quarter like we have been doing since the last three quarters. Secondly, one thing should be kept in mind that the net debt has come down even though the working capital requirement has been much higher because of the higher coking coal prices. Despite that, we have been able to bring the debt down. Currently, net debt to EBITDA is around 1% and it will stay at that level we had guided that we will be between 1% to 2% and we can fully realise our growth plans by keeping the debt to EBITDA below 2%. CapEx will be around Rs 10,000 crore this year and it will be in the same range next year also. We are still working on the full details, as Kalinganagar growth is happening and then some investment will be made in Neelachal.

Q: Tata Steel Long Products has won the bid to acquire Neelachal Ispat Nigam Limited ('NINL'). What strategic sense it will create and do you think that the price at which you have got it is viable? Also, tell us about the opportunities that you will see in the future?

A: We have three major sites for flat products, at present, and they are

At Jamshedpur, which is a mix of flat and long
At Angul or Meramandali and it is a site of Bhushan and that is at 5 million tonnes and can be taken to 10 million tonnes and it is all flat products.
At Kalnganagar, it is currently at 3 million tonnes and will be expanded to 8 million tonnes and then can be taken to 16 million tonnes. It will also be for all flat products.

So, a flat product site was our requirement because long product expansion is important as the demand for long products is likely to increase in India as there is a focus on infrastructure, which means it will certainly grow. Thus, Neelachal was a good site from that point of view and is located next to our Kalinganagar site, it is across the road, so, you can look at it as a connected site. And, between Neelachal and Kalinganagar, we will have 6000 acres of land, which means in the same area and locality. So, the shared infrastructure will be much less, as we scale up both these sites, the cost efficiency will be much more. And, Neelachal's existing asset of 1 million tonnes but you can easily take it to 10 million tonnes with the land reserve. Secondly, 100 million tonnes of iron ore is there with Neelachal and if today we have to bid for 100 million tonnes of iron ore then you will have to bid very aggressively at different premiums, which you will see. This comes along with the asset. So, the value is there and this is why we bought Neelanchal.

Q: You will also focus on such acquisitions in the future as well?

A: No because with these three sites themselves, we can grow to 40-50 million tonnes. So, we are not under any pressure to look at any other asset but will certainly consider depending on the situation. But, whatever we want to grow for the next 10-15 years then with these existing sites, we are able to grow.

Q: The government will soon start the process for the plants RINL and SAIL. Will you be interested in those or not?

A: Will see. When the process starts, we will look at it but as I said the main focus just now was to create options for ourselves and it has happened. Whether that happens or not, our growth ambition can be fulfilled with the existing sites.

Q: There are media reports related to the criminal probe in the Netherlands over pollutants. What is your take on it?

A: the issue has been going on in the Netherlands for a few days. But, I would like to tell you that our plant in the Netherlands is one of the best in the world as far as emission, carbon footprint and environmental footprint is concerned. But the local communities had some issues and they have been raising some issues and some cases have been filed some time back because of that. recently, there was a report, we do not have complete details for the same at present, where it is said that the emissions in the locality are higher than what is reported by Tata Steel. So, the prosecutor has said that they want to check that report Vis-a-Vis what we have reported etc. We have said that we are happy to cooperate and we have always worked very transparently. We are happy to work with the authority so that this matter is resolved at the earliest.

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