‘We are not that concerned about demand in India’

Steel industry is bouncing back with falling input cost and somewhat stable demand despite the gloomy outlook in the global markets. Businessline spoke with TV Narendran, Managing Director, Tata Steel, on the road ahead. Excerpts from the interview:

Has the last quarter been challenging?

I have been in this industry for 35 years. I think, we have to learn to deal with the cycles, and that’s inevitable. Last quarter, we had an Ebitda margin of 20 per cent in the India business due to low coal prices, and the net profit was Rs 4,100 crore. Even in difficult times, we had a strong performance and, if we were to double this business in the next few years, you can see the impact. In Europe, we are in a slightly unique situation because Netherlands [unit], which was always PAT [profit after tax] positive, is now negative because we are realigning a blast furnace. Only one of the two blast furnaces is being operated and volumes are at 60 per cent of normal levels. From September quarter onwards, Netherlands [operations] will get back on track.

Is there any apprehension of demand slowdown in India?

Demand from the auto sector was strong. We expected more demand from construction, but still it was not bad. Rural markets have been a bit slow, but are starting to pick up and, if monsoon is good, we will have a better second half. The falling inflation will also help us. We are not so much concerned about demand in India. Despite better demand, steel prices are soft as domestic prices were reflecting the international trend. I expect a stronger H2 than H1 for us. The big elephant in the room is China. Its recovery has been a bit disappointing and efforts are on to pump it up.

With debt levels rising, any rethink on your capital expenditure?

No. We had guided Rs 16,000 crore for the year. We have already spent Rs 4,000 crore in the first quarter, mostly for the Kalinganagar project, which we want to complete fast. We reduced debt to Rs 67,000 crore and it has gone up to Rs 71,000 crore, largely due to higher working capital. If H2 turns out to be good, we will have more headroom. The original plan was to deleverage by billion dollars despite spending Rs 16,000 crore capex. The first half has been more challenging than we had thought, but it is too early to give up on that target.

How is the production of green steel progressing?

We had set up a 0.5-million-tonne recycling plant in Rohtak. This will feed scrap to the electric arc furnace being set up at Ludhiana in Punjab. We got the environment clearance last week for the electric arc furnace and, in the next two years, once we get the consent, we’ll set up the 0.75-million-tonne scrap-based steelmaking unit — very high-end from an energy efficiency point of view. The product will be Tata Tiscon Rebars, but it will have a carbon footprint of less than 0.2 tonne per tonne of steel because we will be using scrap, using a lot of green energy to recycle it. We can replicate this model because it needs only 100 acres for the rolling mill and maybe another 50 acres for the scrapyard. We will not need 3,000 acres like for an integrated steel plant. Once successful, we can replicate this model in other states where there is scrap available, where energy costs are competitive, and there is a demand for reinforcing steel. We can have one such plant in the west, south and north.

Can you import scrap for your electric arc furnace?

It would be expensive to import. We are already a big buyer of scrap in India because we are using it in our existing facilities in Jamshedpur, Meramandali and Kalinganagar — the more scrap you use in the existing process, the carbon footprint comes down. We are buying over one million tonnes of scrap across the country and shipping to Jamshedpur, Meramandali, and Kalinganagar.

Do you think cost of power will play a major role in recycling scrap?

When we were setting up the first unit, Punjab and Haryana were competing for this plant. Finally, we got a better deal from Punjab. Energy costs and other support is a very important thing. These are businesses which will not have the margins of integrated steel plant, but neither we have to spend so much capital.