Rupee depreciation helped us in keeping the prices at a stable level and improvement of cost efficiencies also benefited us
T V Narendran, managing director & chief executive officer, Tata Steel, spoke about the second quarter results, growth expectations and steel pricing, among others, during an interview with Swati Khandelwal of Zee Business.
Tata Steel has posted sound results for the September quarter. Tell about the growth triggers?
July-September was a good quarter for us as the domestic demand was quite strong despite it being a seasonally weak quarter. Rupee depreciation helped us in keeping the prices at a stable level and improvement of cost efficiencies also benefited us. Growth in production when compared to the previous quarter has also played an important role.
Do you think that you will be able to maintain this growth cycle?
Ebitda per tonne will stand between Q1 and Q2 as there is a certain pressure on the market. We are looking forward toward to the impact of the non-banking finance companies (NBFCs) on the market.
Any update on integration with Bhushan Steel in terms of output for this and next financial years?
Bhushan Steel's Ebitda stood around Rs 1,100 crore in the last quarter and the net profit was positive. We have done quite well in the first three months. Production and margins have increased. Margins have gone up from Rs 8,000/tonne to more than Rs 10,000/tonne. We are working on many other things and hope that Bhushan Steel's performance, both in terms of volume and profitability, will continue to show a positive trend.
Tell us about the synergies of the Usha Martin acquisition?
We are in a transaction process at Usha Martin and they have received shareholders' approval to go ahead. The process will be completed in the next 3-4 months. We feel that long products business is slightly different from the flat products, and even the cost structure is different. In addition, the physical configuration is also different. That's why we thought to expand our long products business. The existing sites, Jamshedpur, Kalinganagar and Angul, are mainly into flat products. Through Tata Sponge and Usha Martin we will create the nucleus of the company that can participate in the opportunities for long products' growth. As we believe that long product facilities will be available in the market.
What is your outlook on demand and supply in the steel segment in both domestic and global markets?
There is a demand growth for steel in the global markets, especially in the major steel consuming countries such as China, the US and Europe. In the past eight months, we have seen demand and supply growing by 7% and 6%, respectively, in China. In fact, the exports outside China have gone down from 10 million tonne/month to five million tonne/month, which is a reasonable level. In addition, the macroeconomic conditions in the US and Europe are favourable and the demand is growing. The demand was already high in India and Southeast Asia, and this is a reason that we are seeing that overall the steel industry is in a good place as compared to the last three years.
Do you see demand-supply tightening ahead?
It will depend on the local demand. Normally, this is a weak season, but this was a year when the season was very strong for us. We are just looking at certain things such as NBFC issue, liquidity pressure, impact on our customers from the construction and automobile segments. Normally, January to June are the best months for steel demand. This October to December quarter is normally better than July to September as demand goes up after the festival season ends. This is a reason that makes us feel that the steel consumption will grow around 7% in India this year.
What is your outlook on steel pricing? Do you see any headwinds?
There will be no change in prices as the situation that existed 2-3 years ago was an unusual circumstance, and now it has reached a more stable level. The global hot roll coil price lies between $550 and $600/tonne. It is not a very high price, and it is an average price when looked at the prices of past 15-20 years. There is a stability in demand and supply and the current prices are at a sustainable level.
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