Hope to drive Europe business to self-sufficiency, cash profitability: Koushik Chatterjee

By | May 20, 2019

Koushik Chatterjee, executive director and chief financial officer of Tata Steel (Photo: Hemant Mishra/ Mint)

MUMBAI: With the proposed joint venture with German steel giant Thyssenkrupp now abandoned, Tata Steel will focus on making its European business self-sustainable. Koushik Chatterjee, executive director and chief financial officer of Tata Steel, said in an interview that the market can expect more clarity on the company’s European operations within 6-8 months. Edited excerpts:

Now that the joint venture with Thyssenkrupp has been abandoned, do you see Tata Steel being on the back foot in future negotiations with other potential partners?

Structurally, we’re in a much stronger position with 19 million tonnes (mt) capacity in India, which will become 24mt in the coming 24-28 months. We have a business in Europe that we will drive to self-sufficiency and cash profitability that will compete with European peers.

At a consolidated basis, our Ebitda (earnings before interest, tax, depreciation and amortization) margin is 18%, globally on the top end of the benchmark. We’re not in a weak position and neither are we looking at this from the short-term optimization point of view.

The long-term point of view is that we want to get to a structural outcome similar to that of the JV. As far as debt is concerned, that journey is irrespective. We would like to be debt at 3x Ebitda and so long as we are in the 90,000 crore mark (of debt) we should be okay. We’ve announced that we will reduce debt by $1 billion this year. This is a question of becoming stronger to create more appetite for growth. We want to be leaner and once the 5mt in Kalinganagar is implemented, there will be a further increase in our earnings capability and opportunity to deleverage. That’s 24 months away. So from now on to then, this $1-billion-plus annual exercise will bring debt down substantially.

I don’t think that we are in desperation or in a weak position to negotiate. We’ve done huge restructuring in Europe and have invested in asset configuration in the Netherlands.

The very reason that the European Commission (EC) sees our asset configurations as strong, it means we can drive more value.

If you were to look at another partner for the European operations, could it be non-European, possibly Chinese, partner?

If we are building a similar framework that we developed with Thyssenkrupp, we would be more careful with a European partner and analyse the impact of what works and doesn’t . If it’s non-European, it would be easier, but I can’t discuss preferences in geography or names. We will keep all options open. The EC hasn’t given its final decision on the JV yet, so we are, in fact, still bound by confidentiality.

What timeline should the market look for a resolution on Europe?

This isn’t a fast-food product, it doesn’t happen overnight. The way to look at it is what’s fit for purpose. Of course, it’s not going to take 3-5 years, maybe more like 6-8 months. But we can’t talk about something where a lot of the control is externally dependent (ie from competition commissions). Even if we want it, we have to get the second leg to work with us.

While Tata Steel’s India operations are stable, how does the entry of a third private player affect you?

If you look at fundamentals, India’s steel demand is growing annually at 5-6%. With the kind of consolidation that has happened out of the IBC process, with existing under-utilised assets changing hands and a 5-6% base case in growth of steel demand, a good third competitor coming to the market provides a lot more maturity to the market in terms of product and offerings. This is far better than having unstable and weak competitors because then the market can sometimes behave irrationally. Market discipline is also important.

There are secondary steel units coming up for sale under IBC. Are you interested in them? Does debt on the book constrain further acquisition?

Our asset configuration is fairly well tied up. Secondary mills are typically stranded mills. We don’t want to buy capacity for its own sake. Our acquisitions and organic growth are quite nicely stitched up in terms of upstream, midstream, downstream, value-added products and market and we have the cold rolling mill and galvanizing line coming up in phase 2 of the Kalinganagar expansion. So (we) will not be looking at stranded assets.

How would you respond to the US-China trade wars leading to dumping of steel in India? Are you asking for retaliatory tariffs?

The heat (in the trade war) has come off in the last few days. With regard to import tariffs, as an industry what we worry about is unfair competition. In 2015-6, the price of steel coming in was significantly lower than the cost of steel. Competition is good so long as is on a level-playing basis. If we are used as a dumping ground, then action ought to be taken. The NPA numbers in steel became so large and the solvency of local steel companies were at risk because of this, vis-a-vis the fact that steel companies elsewhere in the world were able to employ people, use economic resources and export their products. That’s the overall unfair platform which needs to be tested and need measures to be taken accordingly.