Inorganic assets to fuel Tata Steel growth: T V Narendran

Tata Steel will look at all inorganic options to achieve its target of doubling capacity in the next five years.

Tata Sons chairman Natarajan Chandrasekaran had recently said that a deleveraged Tata Steel would be better positioned to grow faster and double capacity in India over the next five years, organically or inorganically. Asked about it, Tata Steel India and Southeast Asia Managing Director T V Narendran said, “He has set the target for us,” and then elaborated that it would be achieved through a mix of organic and inorganic options.

Kalinganagar would be organic, he said. Tata Steel’s installed capacity in Kalinganagar in the first phase is three million tonnes. It is understood that the company will be taking up the second-phase expansion to the board for approval in the near future and that could be three or five million tonnes.

Narendran, however, said that any capacity addition this year would have to be through the inorganic route. Tata Steel had said earlier that it would cash in on the opportunities thrown in by the insolvency process.

Among the 12 stressed assets under the Insolvency and Bankruptcy Code, five were from the steel sector. The companies were: Bhushan Steel, Essar Steel, Bhushan Power and Steel, Monnet Ispat and Energy, and Electrosteel Steels.

Asked whether Tata Steel would look at assets in the east, Narendran said, “We are looking at all inorganic assets.”

The assets in the east are Bhushan Steel, Bhushan Power and Steel, Monnet Ispat and Energy, and Electrosteel Steels while Essar Steel is in the west. The size of the assets range from 1.5 million tonnes to 10 million tonnes.

An analyst said both assets in the west and east would make sense for Tata Steel because an acquisition in the west would give it access to that side of the market. “On the other hand, Tata Steel’s mines are in the east. For each tonne of steel, three tonnes of raw materials are required, so Tata Steel would save on the logistics cost if it acquires a plant in the east. It can always send the finished product to the west, but it will save on volumes,” explained the analyst.

At present, Tata Steel has an installed capacity of 12.7 million tonnes and doubling capacity would mean taking it to 25.4 million tonnes. “That will not be possible through the organic route alone,” said industry sources. Tata Steel also has approval to add another one million tonne to the existing 9.7-million capacity at Jamshedpur.