Tata Steel Offers No Clarity Over Debt Reduction Plan In Annual Report
Higher debt may have a bearing on Tata Steel’s earnings in 2019-20 but still doesn’t find much mention in its annual report.
While Tata Steel Ltd.’s free cash flow is at a decadal high, uncertainties over its debt reduction plan remain after a planned merger of the company’s European business with Germany’s Thyssenkrupp AG collapsed.
The Tata Steel-Thyssenkrupp merger deal would have transferred some of Tata Steel’s Rs 1-lakh-crore debt to the merged entity, allowing India’s oldest steel producer to focus on the domestic market where it has been slow in expanding capacity.
Along with a global slowdown in steel demand and no immediate prospect of sale of its European division, higher debt may have a bearing on Tata Steel’s earnings in the ongoing fiscal. Still, it doesn’t find much mention in the company’s annual report.
While Tata Steel said it aims to pare debt through internal cash flow generations, selling non-core assets and aligning debt maturity profile to long-term steel projects, it didn’t provide any specifics.
The company’s gross debt rose nearly 9 percent year-on-year to more than Rs 1 lakh crore in 2018-19, but its net debt jumped 37 percent as its cash and cash equivalent and investments declined. That’s because the company redeemed short-term mutual fund investments during the year as it looked to put in money into Bhushan Steel.
Tata Steel, however, managed to extend the debt maturity profile after it raised Rs 4,315 crore through non-convertible debentures with a maturity of 15 years.
In 2018-19, the company’s free cash flow turned positive for the first time in a decade. Its cash from operations rose to Rs 30,430 crore in FY19 from Rs 10,912 crore a year ago. That was mainly driven by an increase in its operating profit on account of higher volumes, improved realisations and favourable foreign exchange movement.
Domestic Demand
Tata Steel expects demand for steel in India to remain stable amid a fall globally due to the ongoing U.S.-China trade war, uncertainties around Brexit, and an auto sector slowdown.
It expects steel demand in India to grow at 7 percent this fiscal year, aided by higher government spending on infrastructure—smart cities, affordable housing, dedicated freight and high-speed rail corridors—and a recovery in capital goods sector, according to its annual report.
Prices of the alloy too are expected to remain stable as insolvency cases involving steel companies pushed consolidation in the industry, Tata Steel said in the annual report.
European Business
Tata Steel plans to improve the operational performance and enhance cash flows to ensure that its European division is self-sustaining, according to its annual report. The company’s European business reported a net loss of Rs 1,475 crore in 2018-19 compared with a profit of Rs 11,687 crore in the year-ago period.
Looking Beyond Traditional Business
The company is aiming for 30 percent revenue from non-traditional steel business in 2025 as it plans to expand its downstream portfolio. Tata Steel is also targeting 20 percent revenue from its service and solutions portfolio and 10 percent from the new material business by 2025, its annual report said.
Besides, Tata Steel has set up a new business vertical for composite material such as fibre reinforced polymer—made of a polymer matrix reinforced with fibres and used in glass, carbon and aramid.
To cater to the demand for automobiles, white goods and other consumer goods, Tata Steel plans to foray into value-added products under innovative services and solutions segment.
