AM/NS India will have 'robust financial discipline' while expanding: CFO

Acquisition is growth driver for AM/NS and its parent companies, ArcelorMittal and Nippon Steel, says Amit Harlalka

AM/NS India, a joint venture between ArcelorMittal and Nippon Steel, is in the middle of a major expansion. AMIT HARLALKA, chief financial officer of the AM/NS India, in a video interview told Ishita Ayan Dutt about plans for capital expenditure (capex) and funding. Edited excerpts:

AM/NS India plans a major expansion of 40 million tonne (mt) capacity. How will it be funded?

We have improved our performance from 6.5 mt pre-formation of AM/NS India (in December 2019) to an upgrade of 8 mt. Over the four-year period, we have been able to generate a significant amount of cash flow for the business, and we continue to improve the profitability of the business.

For our expansion journey, we want to improve upstream capacity at our Hazira operation (in Gujarat) from 9 mt to 15 mt. We are also setting up a state-of-the art downstream facility at Hazira. So, the total outlay for the capex is around $7.4 billion. For this, we have tied up with our foreign banks – mostly Japanese banks – for a facility of $5 billion which has been secured.

What about the funding for expansion beyond 15 mt?

Our ambition is to have 40 mt capacity by 2035. The Indian steel industry continues to remain very robust. The country’s growth in terms of GDP (gross domestic product) and the focus on infrastructure would mean that we will continue to invest in steel capacity.

As we complete our expansion in 2026, we would start our next phase of expansion from 15 (mt) to 20 mt at Hazira. It can go up to 22 mtpa (million tonnes per annum), which would make it the largest single location manufacturing facility in the world.

Parallel to that, we have a plan to increase our capacity in Odisha which would be another 18 to 20 mt of expansion. Funding for this will come as we move along. We would continue to have a robust financial discipline regarding our expansion.

Your debt to ebitda was 3.8 times as of March 2023. What is the plan to bring it down?

In the last four years, we have done acquisitions of $3 billion in India –port asset, power, downstream facilities. In addition to the $3 billion of acquisitions, we have invested close to $2.2 billion on our capex programme. So we have invested close to $5.3 billion in the last four years in our business in India and all this has been through internal accruals.

We have a very robust balance sheet and we are able to generate significant cash flows from the business here. We would see that the financial stability of the business remains strong.
 

Both ArcelorMittal and Nippon are global players and we have access to multinational and Japanese banks through which we have funding facilities. We do not have any specific targets in terms of net debt to ebitda. But we would remain very conservative and maintain financial prudence in terms of our expansion.

The next two years will be capex heavy and there might be some increase in our leverage ratios. But over a longer period of time, we would strive to bring it down to more sustainable levels.

You had expressed interest in NMDC’s steel plant but it is hanging fire. Are you still in the fray for Vedanta’s steel asset?

Acquisition remains a key driver for growth for our parent companies – ArcelorMittal and Nippon Steel – and similarly for AM/NS. We are always open to good operating assets in the country. We are definitely evaluating these assets. If we have the opportunity to acquire them, we would definitely be interested.

What is your capex for FY25?

We work on a calendar-year basis. This year and next year will be heavy capex for us because we are going to invest a lot on our expansion at Hazira. Overall for our expansion, we need to invest close to $4.5-$5 billion. So $2-$2.5 billion will be invested this year and $2-$2.5 billion in the next year. The journey will continue in that direction in terms of our capital intensity.

Are rising imports a threat to capacity expansion?

We see the long-term India story remaining intact in terms of GDP growth of 6-8 per cent. A GDP growth of 6-8 per cent will translate to a steel demand growth of 7 to 9 per cent because of the steel intensity.

The government’s endeavor to increase the steel intensity is also there. A lot of investment is being made in infrastructure assets and there is push on the manufacturing side, which will push the demand for steel. There is also a lot of demand on the automobile side. The demand is almost close to 8-10 mt of additional steel every year. Compared to it, the import is a negligible portion. Imports have risen from September onwards. But we feel that this is a temporary phenomenon and it will ebb out as the government and the steel association are seriously taking note of this.

India, from a net exporter, will become a net importer country this year. But it does not impact the dynamics of our investment in the country. Also, steel investment is a three- to five-year cycle. These are large capex and we don’t want to slow down or calibrate our investment.