Product Mix Strategy, Cost Cuts Lift Tata Steel

Tata Steel has broken all its previous records in terms of capacity utilisation, production and profits during the financial year ended March 2001.

Sales, at Rs 7,759.44 crore, is a record and the profit before exceptional items and tax, at Rs 888.28 crore, is the highest ever achieved by the company.

The management attributes the robust performance to aggressive cost-cutting, better product mix and a marginal improvement in price realisation over the previous year. The labour productivity also doubled in the last five years on account of rightsizing of manpower.

The year, though commenced on an optimistic note with increase in demand and rising steel prices, international prices dipped by over 30-40 per cent after July 2000.

The slowdown in the US economy, increased export activity by Russian and CIS mills and global overproduction accelerated the downslide. Steel prices across the world came under pressure and international prices of hot-rolled coils dipped to low levels of severe recession of 1998.

The company's sales of products and services were up 12.6 per cent to Rs 7759.44 crore in FY'01. Gross profit stood higher at Rs 1757.14 crore, up 36.68 per cent. Interest cost rose by 6.19 per cent at Rs 412.39 crore. The net profit after extraordinary items shot up 33.96 per cent to Rs 553.44 crore.

The long-drawn modernisation programme involving capital outlay of Rs 12,000 crore in the last two decades has also started bearing fruit. The production of salable steel of the company was the highest ever at 3.49 million tonne.

The rightsizing of the labour force from 72,621 in 1995-96 to 48,821, though cost the company an additional burden of Rs 665.86 crore in the last five years, helped improve labour productivity. The company's salaries-to-sales ratio declined to 13.49 per cent in FY'01 from 16.25 per cent in FY'96.

With no major modernisation work pending, the company fine-tuned its debt portfolio by repaying a long-term loan of Rs 509 crore. On account of fresh drawals during the year, the reduction in overall borrowing was Rs 235 core. This saved Rs 37 crore on interest on long-term loans. The company proposed to use call option on non-convertible bonds valued at Rs 500, which will be redeemed on November 1, 2001.