Tata Steel’s second quarter results were ahead of the market expectations even as the European business remained a drag and debt rose sharply. Koushik Chatterjee, executive director & CFO of Tata Steel, however, told Sambit Saha of The Telegraph that there would be a ‘visible impact’ of restructuring of the UK operations in six months, even as the business environment in India and globally may remain rangebound. Chatterjee also argued that Tata Steel is in a ‘very strong position to pursue its growth strategy prudently’ despite gross debt nudging at ₹1 lakh crore.

How would you assess the European business as it continued to be a challenge as evident from the consolidated results. When can we expect the tide to turn?

I think one has to explain your question in the context of the macro environment. As you are well aware, the steel industry is very exposed to global factors. The industry has been on a clear downcycle for the better part of this calendar year due to the economic slowdown in China. As a consequence, China is currently exporting at an annualised rate of around 128 million tonnes of steel which is 125 per cent of the exports China did in 2022.

Just to put this in perspective, this represents around 70 per cent of the steel demand in the EU. Hence there is a huge price pressure across the world on steel currently especially in the EU coupled with the prevailing low demand environment.

Operationally in Tata Steel, we are significantly better in the Netherlands compared to a year back and our focus is on all controllable areas of the business. In the UK too, we have safely and successfully wound down our heavy-end operations which was the cash guzzler and in the next six months once our fixed costs structure aligns with the new downstream operating model, we will see a visible impact.

With the Chinese stimulus announced a few weeks back and an expectation of a further response to the Trump election (and announcement of tariffs) we expect an uptick in the market sentiment.

Tata Steel had earlier guided the UK to turn around from the second half. What is the outlook now?

Yes, the path to turnaround in the UK is actually underway. We got delayed by about four months due to the UK general elections as the consultation process was on hold which affected the fixed costs take-out actions.

We have now completed both the national-level consultation and the grantagreement during the second quarter.

On the ground, post the closure of the upstream operations, we are now procuring the substrate and converting the same to finished products.

We are also assessing options to improve our sourcing costs for the UK and as we progress over the next two to three quarters on the fixed cost rationalisation, the business will be able to demonstrate the performance. As part of the performance improvement programme, we are continuously working to bring down the structural fixed cost base in Tata Steel UK.

When do you plan to take the decarbonisation process in the Netherlands and what could be the projected investment there?

In the Netherlands, the approach to decarbonisation is wider in scope as it also involves investment in air quality and health parameters. On air quality just to give situational context for your readers, the current level of air quality index (AQI) around our Ijmuiden steel plant in the Netherlands is around 4 vs 320 in Calcutta as we speak! So, this gives you a sense of the stringent standards of the environment in that geography!.

We are actively progressing on the discussions with the Netherlands government and we have submitted our investment plan and business case. The process also involves the European Union in Brussels as it has oversight of the EU guidelines and standards on the decarbonisation plan and grant approval. As far as the project scope is concerned, we are going to have a similar Electric Arc Furnace as the UK except that we will be primarily using direct reduced iron (DRI) as the feed while in the UK it will be scrap.

Therefore, the project scope and costs include in this phase a DRI Plant, 3 million tonnes per annum Electric Arc Furnace and additional infrastructure. The scoping is based on and contingent upon the final range of financial support from the Netherlands government.

While we are working at pace with the Netherlands government and various other stakeholders on putting the contours of the decarbonisation project through to the final investment proposal in the two quarters, we don’t expect to spend any material capex in the next 12 months other than preparatory, enabling and engineering work.

You told the analysts that Q2 was a very challenging quarter. What is the outlook for Q3 and H2FY25?

We are not seeing any material change in the global or domestic business environment in the next 3-4 months. Seasonally the December quarter is a slow consumption quarter in Europe due to winter breaks and then the Chinese New Year follows thereafter.

In India though we should pick up activity leveraging the government infrastructure spending and we expect a demand pick up in construction activity including industrial construction.

The market spreads including the raw material prices globally will be range-bound. The outcome of the trade investigations undertaken by several countries on steel exports from China will be keenly followed too.

Tata Steel’s gross debt now rests just shy of ₹1 lakh crore. Do you plan to return to the deleveraging journey?

I have often repeated that the de-leveraging journey is an enterprise-wide strategy and we will always look to reduce our absolute debt and this is an ongoing endeavour. Having said that, I want to contextualise that over the last two years while the market conditions have been soft we have acquired Neelachal Ispat for ₹12,000 crore which will be the beachhead for growth in long products in the future while executing our 5 million tonne expansion in Kalinganagar for ₹27,000 crores.

It is not only a state-of-the-art facility with thelargest blast furnace in India but will be a game changer in the product mix which will have a lasting impact on Tata Steel’s structural earnings robustness.

We have invested in our mining capacity expansion and are the largest iron ore miner in the country. So, a lot of spend has actually been on building our future in world-class assets. We have also taken structural decisions and executed the shutdown of the blast furnaces and the heavy end in the UK.

While the steel industry is in a phase of a global multi-year downcycle, we are setting our foundation for the future. We are executing the UK decarbonisation project currently, have a strong growth pipeline of mega organic expansions in India leading up to 40 million tonnes and are planning decarbonisation in the Netherlands.

Tata Steel in India on average generates about ₹20,000 crore of operating cash flows yearly and therefore in a very strong position to pursue its growth strategy prudently, keeping within the guardrails of balance sheet metrics and creating future value.