How Tata Steel Plans To Pare Debt By $1 Billion After Failed Europe Joint Venture
Tata Steel has a gross debt of over Rs 1 lakh crore as of March.
Tata Steel Ltd. isn’t looking for a joint venture partner in Europe for now after a deal with Germany’s Thyssenkrupp collapsed, but plans to go ahead with its plan to pare debt.
A combination of free cash flows along with the sale of non-core assets should be able to service the debt target of nearly $1 billion (about Rs 6,800 crore) in the ongoing financial year, Koushik Chatterjee, executive director, and chief financial officer at the steelmaker, told BloombergQuint in an interview.
Tata Steel has a gross debt of over Rs 1 lakh crore as of March. A merger of the European unit with Thyssenkrupp would have transferred some of it to the joint venture that didn’t materialise, allowing India’s oldest steel producer to focus more on the domestic market where it has been slow to expand capacity.
Chatterjee, however, said debt reduction would go as planned despite its capital expenditure to increase capacity at Kalinganagar, Odisha to 5 million tonnes a year. In 2018-19 fiscal, Tata Steel generated operating income of around Rs 30,000 crore. Adjusted for capex worth Rs 8,000 crore, interest payment of about Rs 4,000 crore and a dividend payout of nearly Rs 2,500 crore, it still had cash flows.
If the company manages to maintain the same level of operations and cuts non-earning costs like stringent working capital requirement and lower European capex requirement, Tata Steel should be able to meet its target to pare debt by a billion dollars, he said. In the next two to three years, the company plans to bring down debt-to-Ebitda to 2.5 times from 3.24 times as of March.
Chatterjee said the company now intends to focus on improving the performance of European business rather than scouting for a partner. The aim, he said, was to make the unit cash sufficient or self-dependent by June-end next year.
Market conditions remain challenging as demand from the automobile and real estate sectors fell. The threat of a trade war between the U.S. and China and rising input costs are the other headwinds.
While the company has no specific expectation from the Budget 2019, Chatterjee said any step to boost growth and focus on credit strategy would not just stimulate demand for steel but the overall economy.