Tata Steel’s Man For All Seasons

TATA STEEL CEO and managing director T.V. Narendran is often asked how he could work in the same company for 34 years. Narendran has mastered the answer by now — he finds every day different, considering the challenges that it poses. “When I open the newspaper in the morning, there would be something that impacts the company,” he says.

The steel industry is geopolitically vulnerable. “If China stops buying Australian coal, it impacts us. If Russia walks into Ukraine, it affects. Anything which happens anywhere has an impact on the industry,” says Narendran.

The last three years have been unimaginably tough because of issues ranging from Covid-19 to the recent export tax introduced by the government to reduce steel prices. “I cannot sit back and think I’m above all these issues since Tata Steel made its highest-ever profit last fiscal,” adds Narendran.

The search for trouble spots has made a difference in the steel maker’s financial health in the last two years. It managed to reduce its debt to ₹54,504 crore in June 2022, from ₹1.04 lakh crore in June 2020 by cutting down on operational costs and increasing exports. The company, which has a global production capacity of 32 million tonnes (MT), mainly in India and Europe, posted a record 436% year on year rise in consolidated net profit to ₹40,154 crore on an operating income of ₹2,43,959 crore in FY22. In the last five years since Narendran took over as CEO, consolidated net profit and revenue recorded a CAGR of 51.26% and 16.70%, respectively.

Narendran has profound experience in the operations of Tata Steel, which helps in addressing minute issues, says Deven Choksey, MD, KR Choksey Holdings. Just before the pandemic, Tata Steel acquired Bhushan Steel and Usha Martin’s steel business for ₹40,000 crore. Despite financial pressure, the company ramped up production when demand picked up in the global market post pandemic. The rise in capacity of its India business to 20MT helped the company offset the vulnerability in the U.K. market.

The U.K. business is still a bit fragile, admits Narendran. “The Netherlands is much stronger. The fragile part of our business was 10MT out of the total 25MT 12-13 years back. It has come down to 3 MT out of 34 MT. That’s why Tata Steel is in a much better position on a consolidated basis.”

The company has a strong franchise in the domestic auto industry with an almost 50% market share. It has started selling steel to oil and gas companies and is eyeing a 40% market share in the sector. It also sells huge quantity of steel to SMEs.

Piggybacking on a 20% market share of the country’s overall 100MT production, Narendran is targeting a 40% share in the lucrative high-end segment. If country-wide production rises to 300MT, he wants Tata Steel to be at 60MT. “I expect domestic demand to be around 250MT over the next 10 years and Tata Steel is well poised to achieve the capacity with just brownfield expansions,” he says. At Kalinganagar, the company is adding 5MT to the existing 3MT capacity, which can be increased to 16MT since the project has 3,500 acres of land. The nearby site of Neelachal Ispat, which Tata Steel recently bought for ₹12,100 crore, has 1MT capacity. Neelachal has 2,500 acres of land.

The Bhushan plant had 3MT capacity when Tata Steel acquired it through bankruptcy proceedings in 2018. The unit, which is currently running at 5MT, can be expanded to 10MT. The company, however, doesn’t want to increase the Jamshedpur production from the current 11MT since it’s in the middle of the city. “Our focus is to make production cleaner and greener,” says Narendran. Tata Steel is targeting net-zero carbon emissions by 2045.

The brownfield expansions of existing plants will increase the production capacity to 47MT. Besides, there are plans to set up a scrap-based electric arc furnace in the north, west, and south. “We already have a scrap-recycling facility in Rohtak. We are going to build a 0.75MT scrap-based plant in Ludhiana. If that becomes successful, we will replicate it in west and south India, where there is scrap available,” says Narendran.

According to Narendran, the cash flow from the India business is enough to support the company’s annual capital expenditure plans of ₹10,000-12,000 crore. “We don’t need to add further debt for capex,” he adds.

Tata Steel is fully secured on the iron ore front, thanks to its own captive mines, and those acquired as a result of the Bhushan, Usha Martin and Neelachal deals. The company, however, imports 80% of coking coal from Australia and Indonesia. “It takes a longer time to expand coal production in the country because of local issues,” says Narendran.

The $12-billion acquisition of Corus in 2007 has been denting the consolidated balance sheet of Tata Steel for over a decade now. The company tried to cut cost by selling assets and laying off workers. In addition, it also tried to merge/sell the business to other steel firms, including Thyssenkrupp and SSAB. The U.K. and the Netherlands businesses were finally separated in 2021. Narendran says the company has no plans to increase the U.K. capacity beyond 3MT.

According to analysts at Motilal Oswal, the European operations of the company have substantially improved. Tata Steel Europe posted its highest ever EBITDA/tonne in Q1 FY23. It was more than the Indian business — ₹28,220 vis-à-vis `21,326.

Narendran is looking to fast-track the growth of the New Materials Business (NMB) such as composites, graphene and advanced ceramics. The division was set up four years ago to explore opportunities in materials beyond steel and offset the cyclicality. The composites business of NMB focuses on three market segments — industrial, infrastructure and railways — with ₹600 crore each in sales. Narendran wants to take it to $1 billion a year over the next five years.

The 57-year-old CEO, who is also an avid marathon runner like group chairman N. Chandrasekaran, is racing against time to transform Tata Steel into a global powerhouse.