Tata Steel trims capex in India, Europe on rising economic headwinds, low cash flows

Europe

Tata Steel is looking at an over 33 per cent reduction in capex across Indian and European operations, following the global economic slowdown and reduced cash flows. The capital expenditure, which was estimated at ₹12,000 crore for this fiscal, will be reduced to ₹8,000 crore.

According to TV Narendran, CEO and MD, the capital outlay for the India business was initially set at ₹8,000 crore, while the remaining ₹4,000 crore was set aside for European ops.

“We are looking to recalibrate the capex by 20-25 per cent between Europe and India. The original capex was ₹12,000 crore for this fiscal, we are cutting it down to ₹8,000 crore,” he told reporters after the launch of the company’s steel retail store ‘steeljunction’, here on Saturday.

The cut (in capex) is likely to be spread equally across Europe and India, he said, refusing to divulge details.

Q1 net down

Tata Steel has reported a 64 per cent fall in its consolidated June quarter net profit at ₹702 crore against ₹1,934 crore logged in the same period last year, due to a sharp fall in realisation and higher raw material cost. Consolidated EBITDA per tonne was down 26 per cent to ₹8,725 against ₹11,740 in the same period last year.

Narendran hoped that things (economic condition and steel demand) will improve in the second half of this fiscal.

Recalibration

While the company will explore all possibilities, including recalibration of capex, cash release from working capital and cost reduction, to ensure that its Europe operations remain cash positive, in India it is looking to phase out the projects already taken up.

While this may not essentially lead to projects getting shelved, it would look to re-prioritise some of the facilities being set up so as to reduce the cash cycle.

In India, a major part of the capex was focussed on the Kalinganagar project, which was slated to be complete by FY22. Though the company hopes to be able to stick to the timeline, it would look to prioritise and focus initially on the cold rolling mill which would add value without adding volumes. It would also give priority to the pellet plant as that would help on the cost front.

Group simplification

Tata Steel Group plans to reduce legal entities and subsidiaries across Europe and bring together the operating subsidiaries in India.

“We have a lot of subsidiaries in Europe… at one point we had 200-300 legal entities as subsidiaries of Tata Steel Europe. We have reduced them significantly. We are reducing another 100-120 this year that will still leave us with a lot but that is one way of simplifying,” he said.

In India, the subsidiaries, numbering 30 at present, would be brought together for synergies and to build scale.

Tata Steel hopes to grow its consumer, or B2C, business and take it up to 30 per cent of its total turnover from the current 15 per cent in the next five years.

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