Structurally, we're much stronger now, says Tata Steel's T V Narendran

We have restructured the European business and shrunk it from 18 million tonnes to 10 million tonnes. The India business, on the other hand, has grown to 18 million tonnes, he said

The proposed joint venture between Tata Steel and ThyssenKrupp has collapsed following a feedback from the European Commission. In a conversation with Ishita Ayan Dutt, Tata Steel Chief Executive Officer and Managing Director T V Narendran explains how the firm is better placed to deal with such eventualities than it was a decade ago. Edited excerpts:

Now that the joint venture with ThyssenKrupp has collapsed, what is your Plan B?
 

All I can say now is that there is a Plan B.

Will the European operations be a bleed on the Indian operations?
 

A lot of heavy lifting has been done in Europe over the last four-five years and in the past couple of years it has continued to improve. We are in a stage when we want to run the business in a cash-positive way so that there is no pressure on the India business to do loss-funding. 
 

Tata Steel, today, is in a much stronger place than it was five or ten years ago. We have restructured the European business and shrunk it from 18 million tonnes to 10 million tonnes. The India business, on the other hand, has grown to 18 million tonnes.
  

Even within Europe, we were 11 million tonnes in the UK and 7 million tonnes in the Netherlands. But the Netherlands was always self-sustaining. The UK, which was where the challenge was, shrunk from 11 to 3 million tonnes.
 

So in Tata Steel’s footprint, of the 10 million tonnes in Europe, the challenge is in the 3 million tonnes in the UK. But we are pretty close to making it a cash-neutral business.
 

Last year’s numbers show that our consolidated Ebitda (earnings before interest, depreciation, taxation and amortisation) margin is 18 per cent, which is among the best. I don't think there are many steel companies with a significant footprint outside India that has an 18 per cent Ebitda margin on a consolidated basis.

This will continue improving as the India business continues to grow, which has a higher Ebitda  margin, and as long as we protect our margins in Europe, and keep improving through operational efficiencies. Structurally, we are in a much stronger position. 

What happens to your deleveraging plan?
 

There was a deleveraging plan with or without the JV (joint venture). We were chasing $1 billion of debt reduction irrespective of the JV. We will deliver on that goal. The European JV would have taken out another Rs 18,000 crore or Rs 20,000 crore and we are looking at other possibilities there. 
 

Even with the debt as it stands today and given our Ebitda p performance, we were within 3.5 (debt to Ebitda . Our goal is to bring it below 3. 
 

Between 3 and 3.5 is not such a bad place to be in for a company which is growing so significantly. Even if the JV doesn't happen, as we stand today, we will be closer to a debt to Ebitda of around 3 by the end of the year. 

In many ways, the JV not happening has been a bit of a speed breaker, but it's not that we are changing the direction in where we want to go. 

Would this delay your expansion plans in India?
 

As far as India plans are concerned, Bhushan is already done and dusted from an investment point of view. 

Now, it's more about driving the operational efficiencies. The same is with Usha Martin.  We are on track 

with Kalinganagar. In the next 24 months, all the new facilities at Kaliganagar would be operating.
 

The focus now will be to get Kalinganagar Phase II on track as soon as possible and get Bhushan debottlenecked to more than 5 million tonnes and Usha Martin to one million tonnes. That will keep us on track for 24 million tonnes capacity that we want to reach in India over the next 3-4 years.

Your peak debt after Bhushan buy was Rs 1.18 trillion. What is it now?
 

We were at around Rs trillion at the end of year. The plan for the year was to bring it down by Rs 6,500 crore through our own efforts and if the joint venture (JV) had happened another Rs 18,000 crore would have gone there. In the worst-case scenario, we will have a debt of less than Rs 95,000 crore by the end of the year.

It’s quite clear from the feedback from the European Commission that a JV with a big player like ThyssenKrupp may not be possible. Would you look at piecemeal divestment?
 

The UK is pretty much a single unit in Port Talbot. There are some smaller entities for which we have already announced that we are looking for buyers and some discussions are going on.  But otherwise we were only offering as remedies some of the lines which were important to get the JV through. Now that the JV is not happening, we are not obligated to sell those downstream units because all of them add some value to us.  And if we are looking at a partner in Europe, we will not look at somebody who has a big overlap with us.

Are you already in talks?
 

There are possibilities that are being explored.