Days before Tata Steel came out with yet another strong financial performance, the company’s subsidiary was declared as the highest bidder to acquire Neelachal Ispat Nigam Ltd. In an interview with Sambit Saha of The Telegraph, TSL’s executive director & CFO Koushik Chatterjee defended the rationale to pay Rs 12,100 crore for the asset, disclosed the plan to finance it with 50:50 bridge loan and internal accrual, and affirmed that the acquisition would take TSL’s capacity beyond targeted 40mt by 2030. Chatterjee also shares his views on European business performance, rising coking coal prices and acquisition of an iron ore mine with an aggressive bid.
• Tata Steel has already achieved its stated target of debt reduction by $2 billion this fiscal. Do you foresee scope for further deleveraging in this quarter?
Well, important that you ask that question, As you would see from the financial results, as at the end of December our net debt to EBIDTA has come down to 1x and our financial metrics reflect investment grade rating. Having said that, we will continue to pursue further deleveraging in the future as an enterprise strategy even as we also continue to prioritise our growth plans and allocate capital for growth. Hence you would certainly see further deleveraging in the fourth quarter and beyond that.
• The impact of higher coking coal prices was felt by Tata Steel this quarter. Given that the prices are still elevated, what could be the potential impact on the company this quarter?
Yes, the international coking coal prices have risen very steeply in the last 4 months with spot hard coking coal touching $ 440 per tonne recently though our purchase cost is more index based. Coking coal prices have always been very sensitive to supply reactions with many of the large global met coal producers in Australia facing supply constraints. This has certainly had an impact on the costs and will continue to do so in the next quarter. Good thing is the steel prices are also firming up and offset some of this increase.
• Europe continues to deliver strong performances in the last three quarters. What do you expect on the 4th?
Yes, Europe has had a steady performance with very robust spreads. I believe we will continue to see performance momentum in Europe and with the renegotiation of the long term customer contracts, the benefits of the prices will be reflected in the results especially in The Netherlands.
• TSLP is set to acquire NINL’s 93.71 per cent stake for an EV of Rs 12,100 crore. Many analysts say the deal appears to be expensive. How do you respond?
NINL is a very strategic acquisition for us for multiple reasons. While we have defined our journey in the flat products segment through expansion at Kalinganagar and Mermamandalli (erstwhile Tata Steel BSL) sites, it was important for us to develop a dedicated long products site and hence NINL with 2,500 acres of land and its own iron ore fits the strategy very well.
NINL is also next door to Tata Steel Kalinganagar which will enable us to leverage the proximate synergies of shared infrastructure as we expand both the sites in the future. With the long products demand in India poised to witness significant growth we will leverage our capability in the long products business to drive scale and profitability. So this acquisition needs to be seen from a broader long-term play and the strategic leverage this will bring to Tata Steel than just valuing it on the existing assets.
• How much bridge loan TSL/TSLP is expected to take to finance the deal? How much does the company intend to pay from internal accrual?
We will fund this acquisition with a 50:50 mix of internal accruals and bridge loans which will be repaid in the next few quarters. The financing onus for the acquisition will be taken by Tata Steel and we will push the funding to Tata Steel Long Products which is the bidding entity.
• TSL has announced its plan to ramp up production at NINL to 4.5 million tonnes (mt) in the medium-term and then to 10mt by 2030. When do we expect the 4.5mt to materialise and what will be the investment for the same? What is likely to be the investment to reach 10mt?
Yes, this site will be expanded to 4.5mt in the first phase and thereafter to 10mt with state-of-the-art technology and value-added product mix. Once the acquisition process is completed and integration is underway, there will be time and occasion when we will come out with more details.
• With NINL growth plan in place, what is expected to be Tata Steel Group’s India capacity in 2030?
The NINL acquisition actually strengthens our growth plans over the next decade. We had announced our ambition to be 40mt in India over the next decade. This acquisition provides the enablers to go well beyond the 40mt capacity. We are looking not only at capacity growth but also value added and downstream product portfolio that will provide sustainable value creation for the future.
• Tata Steel won the auction for Gandhalpada mine at a premium of 141 per cent. What is rational to pay such a high price when the company has access to historically low cost iron ore?
Gandhalpada is a greenfield reserve which will be developed over the next few years and be ready for 2030 when our legacy mines will come up for reauction. Gandhalpada is also very strategically valuable to Tata Steel for multiple reasons. Firstly, it has a very large reserve that will drive economies of scale. Second, the ore quality is distinctly good with low alumina that will provide cost efficiency and third, it is in close proximity to our Kalamang mining reserve which will help us develop the iron ore hub around Gandhalpada with scalable infrastructure that will provide high quality iron ore to our operations.
