Steel industry has few players: Tata Steel MD

MUMBAI: Unless the domestic steel industry makes an operating margin of 15-20% in the long term, it is difficult to generate the cash flows needed to invest in new capacities, said T V Narendran, managing director, Tata Steel. The company is optimistic that its operations in the UK will turn positive at an EBITDA level this fiscal year, aiding profitability at a consolidated level.

“If steel demand in India has to grow to 250-300 million tonne, then there is a lot of investment that is required,” Narendran told ET in an interview. “It is not that the industry is financially fantastic; you have fewer players because more and more people are struggling to survive in this industry,” he said.

India’s second-largest steel producer recorded a consolidated margin of 14% in the June quarter. It currently has a production capacity of 21 million tonne, and has recently commissioned another 5 million tonne of capacity at Kalinganagar. It is aiming to nearly double to 40 million tonne by FY31. Around Rs 6,000-7,000 crore investment is needed for setting up one-million-tonne capacity for steel, Narendran emphasised.

“It is a capital-intensive industry which is very cyclical and vulnerable to global prices and that is why you need to look at the financial health of the industry,” he said. “In India, which is a growing market for steel, it is not just about surviving, it is about having the cash flows required to invest and build new capacities.”

According to Narendran, lack of healthy cash flows can cause steelmakers to accumulate large debt, ultimately pushing them into financial troubles as seen in the past, he said.

Over the past few months, steel prices globally have been impacted due to excessive exports by China amid sluggish domestic consumption in the world’s largest consumer of the commodity.

While the Indian steel industry had appealed for a 25% safeguard duty, the government announced a 12% safeguard duty since April for 200 days.

Given that the growth in India is funded by its cash flows and that the Netherlands business is also self-sustaining, the company’s focus will be on the UK unit, which has been burning cash for some time now. “UK is where we have had a problem, so, a lot of the efforts over the last 10-15 years has been to try and fix the UK business so that it can take care of itself,” Narendran said. “Going forward with the transition that we are going through, we have cut the losses, and we hope to be EBITDA positive by the end of the year,” he said.