 "Tata Steel to focus on positive free cash flow in FY21: Chandrasekaran")
Tata Steel will focus on generating free cash flows this financial year, Natarajan Chandrasekaran, chairman of Tata Steel, told shareholders on Thursday.
“April and May have been tough for the company but the management is focused on having positive free cash flows this year, and is working towards it,” he said.
Chandra, as he is popularly called, was speaking at the 113th annual general meeting (AGM) held virtually. Shareholders remained concerned over dwindling earnings of the firm’s India operations, given that the country was under lockdown during the beginning of FY21. A total of 589 shareholders attended the AGM. “We aim to be cash-positive this year, despite challenges in the overall business environment,” he added. For FY20, liquidity stood at Rs 17,745 crore, of which Rs 11,549 crore was in cash and cash equivalents, and the balance in undrawn credit lines.
With consolidated net debt of Rs 1.05 trillion as on March 31, 2020, the firm is looking to reduce the debt level in the current financial year. “Sale of non-core assets, and cash flow, are the two parameters that will be used to lower debt, which is above Rs 1 trillion,” said Chandra.
At its present capacity and Ebitda, net debt should be at Rs 75,000 crore, while net debt/Ebitda should be below 3x, he informed.
Though FY21 has started on a rough note, the firm is confident of an improvement. In FY20, Tata Steel had production and sales of close to 17.5 million tonnes. It plans to produce more than 15 million tonnes in FY21 as it looks to catch up on business lost in the first two months, informed Chandra. He added that because of the current market position, calling back of shares was not in the interest of retail shareholders. Tata Steel shares closed at Rs 433 apiece, up 0.14 per cent.
Over the last month, the stock has touched a low of Rs 350 and a high of Rs 432.
Tata Steel saw nearly 80 per cent of its production in the April-June quarter move towards exports, as demand in the domestic market dried up. However, it has started picking up since June, and 70 per cent of the demand is expected from rural India.
All three steel plants of Tata Steel are running at 100 per cent utilisation.
Tata Steel has chalked out capex of Rs 4,000 crore for FY21, which is almost half that of FY20 (Rs 8,000 crore).
“The capex chalked out this for this financial year does not involve any expansion plans and will be used only for safety-related measures,” clarified Chandra. Further, the company has no acquisition plans this year, he added.
The company is working on improving its Jamshedpur Ebitda. Tata Steel has a strong demand outlook for the India market over the next two years, which it looks to capture.
Meanwhile, shareholders strongly questioned the status of global operations, both in Europe and South-East Asia.
They questioned the audit committee, Chairman, and independent directors over fulfilment of their fiduciary duty, because they were aware of impending losses in Europe, and the money raised from the rights issue would be used to fund those losses.
Further, they sought answers on the huge risk of impairment and the impact on net worth, given the debt levels.
“Tata Steel UK is not profitable. We are in discussions with the UK government, is all that I can tell you,” he told shareholders.
The Europe cost structure is such that Tata Steel needs good spread, which means steel prices have to be at a particular level to support the cost structure. In addition, the company is engaged in talks for divestment of its South-East Asia operations Natsteel.
Chandra highlighted that Tata Steel has been focusing on five core initiatives for the last three years, which includes increased expansion in domestic markets amid addressing overseas assets, deleveraging balance sheet and making it financially fit, and digitisation along with simplification of European operations by reducing the number of subsidiaries by half.
