Our focus on balance sheet management is a core philosophy: Tata Steel CFO

In a Q&A, Koushik Chatterjee, who is also exec director at Tata Steel, says the firm has prepaid Rs 5,800 cr of principal debt in Q1 and is aiming to repeat deleveraging levels of FY21 this year

Tata Steel reduced debt by Rs 29,390 crore in FY21. In an interview, Koushik Chatterjee, executive director and chief financial officer Tata Steel, tells Ishita Ayan Dutt that it has prepaid Rs 5,800 crore of principal debt in the first quarter and is aiming to repeat the level of deleveraging in FY21 during the current year. Edited excerpts:

Metals have come under pressure with concerns around demand slowdown in China and worries that the Federal Reserve may start tapering stimulus. How do you see it impacting the steel cycle?

Iron ore prices have normalised 40 per cent compared to the May peak of $220 a tonne, but equally, coking coal prices remain elevated. Chinese production is expected to be lower by, may be, 50 million tonnes in the second half of this calendar year due to the winter Olympics and climate management targets, which will have an impact on the iron ore demand.

With low system inventory, declining import risks and many policy interventions globally, be it the Russian export tax, extension of safeguard measures for the next three years by the EU, Chinese restrictions on exports etc, global steel margins will continue to sustain in the near future.

Do you see Tata Steel’s performance sustaining? What is the deleveraging target for the rest of the year?

There are several initiatives within the company to ensure we are able to leverage the global trading conditions and also on the cost take out programmes to enhance our competitiveness. We have a very deep and integrated scenario based approach that helps us to plan for emerging situations.

Our focus on balance sheet management is a core philosophy and we have prepaid Rs 5,800 crore of principal debt in the first quarter with the aim to repeat a similar level of deleveraging as in financial year 2021 for the current year also.

Even though Tata Steel Europe saw an improved quarter, it lagged peers. What kind of improvement in steel-to-raw material spreads is expected this quarter?

Tata Steel's underlying performance in Europe was sequentially better and the revenue increase was broadly in line with the market. You have to adjust the product mix of the peers when you compare because the price trajectory of all products is not the same. Secondly, the revenues are dependent on the mix of contracts versus spot and the felt spread in financial statements of Tata Steel Europe will expand in the second and third quarter as the contracts reflect the higher prices in a lagged manner.

Your net debt to EBITDA is now down to 1.59x and you are guiding 2x. Is the headroom in anticipation of an acquisition? Will you be aggressive in your bids for NINL or RINL?

The guidance of 2x net debt to EBIDTA was across cycles and not at a point in time. This year, we will sharply improve the credit and balance sheet metrics and our target is to be in the investment grade metrics. Having said that, Tata Steel also has a very robust organic growth pipeline in India which will be cost competitive and value accretive. And we will of course, evaluate and explore other forms of growth when the opportunity comes and our approach will depend on the underlying asset and the value it has to us.

You invested about Rs 40,000 crore in the last three years on acquisitions, but debt has come down to pre-acquisition level. When do you expect Tata Steel BSL and Tata Steel Long Products to be debt free?

The integration management of both the acquisitions were very efficiently implemented and the focus on operational efficiency, costs and cash flows were the key areas. We have prepaid the acquisition debt on a regular basis and both the companies will be net debt free in the next couple quarters.

What is Tata Steel’s strategy for decarbonisation?

The challenge of climate change is real and needs focused attention globally. The steel industry is known globally as a technologically hard to abate sector and yet a foundation material for the development of any economy.

Tata Steel has developed a decarbonisation pathway for its India business that is ahead of the national goals as per Paris Agreement. Our target is to achieve a CO2 emissions intensity of 2 tonnes per tonne of steel by 2025 and 1.8 tonnes per tonne of steel by 2030 from the current levels.

We are already evaluating new low carbon technologies, working with start-ups, developing operating strategy that would help us accelerate the decarbonisation journey.