Companies
Are Tata Steel's Europe operations close to a turnaround?
Summary
- Tata Steel's UK unit, which has been making losses due to high input costs, will be shutting its blast furnaces to make way for electric arc furnaces. Also, full-scale operations have resumed in the Netherlands after lengthy maintenance work.
Mumbai: The bleeding UK unit of Tata Steel Ltd will start generating operating profit from the latter half of this financial year, managing director T.V. Narendran said, once its blast furnaces are shut and the unit begins processing crude steel imported from India and the Netherlands.
The company’s Dutch unit, also in the red in the March quarter, will turn an operating profit in the current quarter as full-scale production has resumed after lengthy maintenance work, Narendran said in an interview.
The two European units turning profitable will aid Tata Steel’s consolidated financials, after their losses dragged the company’s margins down in the March quarter despite robust performance in India.
Also read: Tata Steel to invest $2.11 bn in Singapore unit to repay overseas debt, fund UK transition
Ebitda, a measure of profitability, stands for earnings before interest, tax, depreciation and amortization. The two European units reported a combined Ebitda loss of almost ₹650 crore in the January-March period.
Narendran said that Tata Steel’s Dutch unit turning a loss last fiscal year was an exception on account of one of its two blast furnaces being shut for maintenance in the better part of the year.
"Now that the second blast furnace is back since February, this quarter onwards, it will be Ebitda-positive," he said.
Also read: Input costs, election, Chinese imports to weigh on steelmakers’ Q4 margins
Tata Steel's UK unit, which has been making losses due to high input costs inherent to the British market, is shutting its blast furnaces to make way for electric arc furnaces. In the interim, the company will rely on imported crude steel from Tata Steel’s Indian and Dutch mills for three years to run its downstream processing units that make value-added steel. These operations will generate an operating profit, Narendran said.
To be sure, the UK unit could slip into the red as it will be booking some expenses over the next two years due to the ongoing restructuring that will see an estimated 2,800 job cuts.
Moving debt to India
Tata Steel on Wednesday secured approval from its board to invest $2.11 billion ( ₹17,408 crore) in its Singapore unit T Steel Holdings Pte. Ltd (TSHP). TSHP is a holding company used by Tata Steel to house its overseas subsidiaries including its UK and Netherlands units.
The transaction will used to shift some debt from the books of TSHP to the Indian unit, Narendran said.
“Traditionally, a lot of our debt was sitting outside India for various reasons. We are now trying to see how we can have more debt sitting in India than outside," Narendran said. This will also have a tax benefit as Tata Steel makes the bulk of its profits in India, and interest payments can be used to reduce the tax outgo, Narendran said.
Also read: The silver lining in slowing domestic demand for steel: higher exports
Perils of import
Speaking about increasing imports of steel into India, Narendran said that more than the impact on volumes of domestic players, the concern was the impact on price.
India imported 8.3 million tonnes of steel in FY24, which was 38% more than the previous year. This compares to 136 million tonnes of domestic steel consumption during the same period.
“It is not so much a (concern in terms of) volume, but it acts as a dampener for pricing," Narendran said, adding that a lot of imports are priced uncompetitively low.
Also read: Vietnamese steel, shoes and other imports get stuck in India’s quality red tape
“If it is unfairly priced imports, we should stop it. Because at the end of the day, if those steel companies are selling steel in India at prices where they are not making money, why should it derail an industry which is investing tens of thousands of crores in creating new capacity?" he said.
Speaking specifically about imports from Vietnam, Narendran said that there is a growing concern that Chinese mills could use the country to route their products to India to circumvent duties levied on Chinese steel. Steel imported from China attracts a basic custom duty of 7.5% in India. But no such duty is levied on steel from Vietnam thanks to a free trade agreement between India and the Association of Southeast Asian Nations (ASEAN), of which Vietnam is a member.
About 10 Vietnamese companies are awaiting certification from the Bureau of Indian Standards so that they can resume trade with India, Mint reported earlier this week.
