The company plans to overtake Nippon Steel (33.7 million tonnes per annum), JFE Steel (32 mtpa), giant Posco (31.2 mtpa) and Bao Steel (26.1 mtpa).
MUMBAI: Tata Steel aims to double its size and profitability in five years. Its target of achieving a scale of 40 million tonnes by 2012 and become the potential No 2 also comes with a target of doubling EBITDA from 13% to 25%.
The company plans to overtake Nippon Steel (33.7 million tonnes per annum), JFE Steel (32 mtpa), giant Posco (31.2 mtpa) and Bao Steel (26.1 mtpa).
The steel maker plans to do this even as it tries to keep its cost position in Europe and South East Asia the lowest.
Is it a tall order? The current size of the Indian company, which acquired the Corus group, is pegged at 25 million tonnes. The acquisition saw Tata Steel’s standalone raw material security at 80% coming down to 17% for the combined entity.
This is because the Corus operations depend on market purchases of its two principal raw materials - iron ore and coal.
“In 3-5 years, this will touch 40% with the Jamshedpur brownfield and Orissa greenfield projects coming on stream,” B Muthuraman, managing director of Tata Steel, said in a recent press briefing after the results.
The company says it’s making steady progress in its greenfield ventures. It is important for Tata Steel as the new sites will help it optimise its acquisition of Corus Group.
"We need to invest in iron ore and we need to invest in land," says T Mukherjee, deputy managing director (steel). The company has blueprints ready to set up units in Jharkhand, Chattisgarh and Orissa.
While Tata Steel is making ambitious plans to expand locally, analysts believe that Chinese steel producers may douse some buoyancy by exporting its steel to India in the coming years.
Already, steel producers in Europe are feeling the heat and are clamouring for anti-dumping duties on Chinese producers. China, a key determinant of international steel prices, has managed to meet its steel requirements from domestic steel requirements.
India's total steel-making capacity is pegged at about 40 mt. With consumption bound to rise, Mukherjee believes that the government has to take the initiative.
Mukherjee is not worried about Chinese steel entering India. "China doesn't want to export steel, it's more interested in exporting manufactured products," he says.
Hitesh Agrawal of Angel Broking concurs with this view. He says in a recent research report: "The Chinese government has already reduced export rebates being provided to their steel manufacturers."
Mukherjee is more worried about his customers. "Recent reports of Chery Automobile, a leading Chinese car manufacturer, eyeing the Indian market is a case in point", he says, adding, "We want our customers to be competitive." He wants the government to release iron ore mines for captive use and land for setting up steel plants so that steel manufacturers can increase supply and hold its own against Chinese steel producers.
Such a move will help Tata Steel tweak its association with the Corus group. The transfer of technology from Europe to India to develop new products and capture growth in India, Muthuraman said in a presentation.
The company's big challenge is to improve its raw material security to 60% - 80% which is expected to be done in phases. With demand continuing to be robust, the synergies available has increased to $450 million over three years, a rise of 50% from its earlier estimate of $300 million.
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