As part of Tata Steel's long-term strategy to expand in the domestic market, the comapny's board on Tuesday approved a plan for the next phase of expansion at Kalinganagar in Odisha. The country's largest steel producer plans to add five million tonne capacity in Odisha taking the company's total domestic steel capacity to 18 million tonnes over the next four years.
In a BSE filing today, the company said the new expansion plan at Kalinganagar was expected to cost Rs 23,500 crore as it would include investment in raw material expansion, upstream and midstream facilities along with downstream units such as a cold rolling mill.
Currently, Tata Steel has a 13 million tonne capacity in India with 10 million tonnes coming from Jamshedpur and balance three million from Kalinganagar phase I. The capacity utilisation level is 98 percent for the domestic market.
The new capacity would focus on flat products as it is aimed at meeting requirement of automotive, general engineering and other value added segments.
The announcement for capacity expansion comes even as Tata Steel is said to have evinced interest in Bhushan Steel and Essar Steel which are undergoing insolvency proceedings, indicating that the company has chalked out a definite roadmap for growth plans in India.
Brokerages, however, are of the view that the company's aggression for National Company Law Tribunal (NCLT)-listed entities may come down going ahead given the certainty of its organic growth route which also talks about raising funds via a rights issue for the expansion.
"NCLT listed companies are dealing with several issues such as whether existing promoters should participate at all in the process, uncertainty over timelines regarding the entire procedure, along with huge participation from private equity players and non-core business entities making the process noisier.
A clear organic growth route of this kind offers more clarity in terms of timeline, funding and overall market share capturing strategy," said a senior analyst on condition of anonymity.
Tata Steel board also approved the financial plan to raise capital for the expansion today and the company will be issuing equity via a rights issue for an amount not exceeding Rs 12,800 crore, it said in the statement.
"What is crucial to watch here is at what price is the rights issue made. If the price is high, retail participation is expected to fall for this issue and Tata Sons (promoter) could then raise its stake in the coming by stronger participation in the rights issue," said another Mumbai-based analyst on the condition of anonymity.
Tata Steel is not the only primary producer of steel to plan expansion in the domestic market. Sajjan Jindal-led JSW Steel is also investing Rs 19,200 crore in several brownfield projects to enhance its capacity in line with national steel policy.
Tata Steel's Growth Plan
- To add 5 million tonnes at Kalinganagar plant
- Total project cost at Rs 23,500 crore
- Project timeline of 48 months
- Funding to be combination of debt and equity
- Company to raise part capital via right issue of Rs 12,800 crore