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Concern Over Tata Steel’s Growing Debt

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Tata Steel’s growing financing costs may hamper its expansion plans in India that includes Kalinganagar phase II and the Greenfield plants in Jharkhand and Chhattisgarh. In the first quarter, the company has paid Rs 1,252 crore for servicing its gross debts of Rs 81,040 crore. It went up by 13.4 per cent or nearly Rs 10,000 crore in the last one year because of the fresh borrowings. Compared to June 2011, the debt spiraled up by 33 per cent from Rs 60,959.50 crore.

Tata Steel has reduced its cash and cash equivalents in the last three years to $2 billion from $4.5 billion in June 2011 for repayments and expansions. Still the financing costs increased over the period of time. In the first quarter of the previous financial year, the financing cost was Rs 992 crore, compared Rs 1,252 crore now.

The Indian entity, in the last four-five years, borrowed extensively for the 3-million-tonne Jamshedpur expansion, which took their total capacity to 10 MTPA in the country, and Kalinganagar phase I. The 3MTPA phase I at Kalinganagar is nearing commissioning by March 2015.

Tata Steel Europe’s stagnant growth is another issue for the company. The loan taken for the $12 billion acquisition of Corus Plc in 2007 is still spreads large on the balance sheet.

On Wednesday, the steelmaker said Tata Steel Europe’s turnover went up to Rs 20,741 crore in the first quarter ended June 2014, compared to Rs 18,432 crore in the same period last year. EBITDA increased by 28 per cent to Rs 995 crores, while the margin improved by 58 basis points. EBIT improved to Rs 136 crore versus Rs 12 crore. It gives some hope to the shareholders.  

But the first quarter consolidated net profit slumped by 70 per cent because of the provisions for impairment of non-core assets and a higher tax expenses. It posted a net profit of Rs 337 crore, compared to Rs 1,139 crore a year earlier. Net sales jumped 11 percent to Rs 36,143 crore, helped by an increase in European demand.

The company's management has intensified cost cuts and focused on high-margin products to boost sales in its European unit, which contributed close to 57 percent of the company's total steel production last year. “European steelmakers have been contending this year with rising imports, which are limiting their ability to take advantage of growing European demand,” the company said in a statement.

Tata Steel had refinanced a portion of the loans in 2010 and trying for more refinancing options to replace the high cost loans by cheaper borrowings. Since the Corus acquisition completed seven years, the repayments will grow larger in the coming years, say industry experts.


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