Tata Metaliks to cut debt with Redi plant sale

Pig iron maker Tata Metaliks would repay some of its debt out of the proceeds from sale of its Redi plant. A more manageable debt-equity ratio would help the listed Tata Steel subsidiary to make investments at its other plant in Kharagpur to become cost competitive.

“The money that we get would go in significant deleveraging of our balance sheet. If you look at the debt-equity, it is now at 5; it will come down below 2. It will be a different balance sheet altogether. If that happens, then your ability to work the future is very different; which could be different kind of investments that we require, in Kharagpur or elsewhere, and it also gives significant kind of financial robustness to the balance sheet,” Koushik Chatterjee, chairman of Tata Metaliks and group CFO of Tata Steel said. Tata Metaliks’ loan burden has gone up from `209 crore to `342 crore during 2010-11.

Chatterjee said, “Tata Metaliks would now look at making some structural and strategic investment at its Kharagpur plant including setting up of a sinter plant, enhancing linkages to more coal and setting up coke oven batteries.”

Tata Metaliks board in January approved an investment of `98 crore for the sinter plant. The aggregate investment outlay for all the above projects are yet to be finalised.

Tata Metaliks would also do a review of the ductile pipe making business earlier set up as a joint venture with Kubota of Japan.

“The pipe business had its starting problems while the market for DI pipes has been very wobbly. We need to review the business and make it more competitive,” he said while clarifying that Tata Metaliks is not contemplating disposing off its investments in the JV.

Rising costs of coal and coke as well as the mining ban in Karnataka, which is the main source of iron ore for its plant at Redi, has forced the company to sell  the plant to an iron ore miner Fomento Resources Group for Rs180 crore.

“Business dynamics have changed completely since we acquired the Redi plant in 2006. Then raw material prices were ruling at Rs15,000 a tonne but now they have doubled to Rs30,000 a tonne,” Chatterjee said.