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Tata Steel: Surging Ahead
In spite of a weak environment, Tata Steel had the best ever sales for the half year ended 30 september 2015
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With operations in 26 countries, commercial presence in over 50 countries and 80,000 employees, what sets the Tata Steel apart is not the magnitude of its operations but the excellence of its people, innovative approach and overall conduct. Continuous efforts at developing cutting-edge technologies and design solutions has helped Tata Steel transform processes, improve inefficiencies and enhance customer experience.
In the consolidated financial results for the quarter and half year ended 30 September 2015, the group recorded consolidated turnover of Rs 29,305 crore and profit after tax (PAT) of Rs 1,529 crore for the quarter. For the half year (H1), the consolidated turnover was Rs 59,605 crore and PAT was Rs 2,292 crore. In spite of a weak environment, the company had the best ever H1 sales, which saw increasing volumes of automotive, branded and value-add products.
Tata Steel incurred capital expenditure of Rs 2,608 crore in Q2 of FY16 and Rs 5,852 crore in H1 FY16. While the gross debt level declined during the quarter, net debt remained stable. The company has a strong liquidity of Rs 16,600 crore and has scheduled term debt repayments of Rs 3,500 crore in the next 18 months.
The Kalinganagar Project (KPO) in Odisha will drive an additional capacity of 3 million tonnes per annum and give the company leverage in catering markets it couldn’t earlier because of capacity constraints. With an aim to become the most preferred supplier of high grade cold rolled automotive steel in India, Tata Steel and Nippon Steel & Sumitomo Metal Corporation (NSSMC) have formed a joint venture company, Jamshedpur Continuous Annealing & Processing Company (JCAPCPL). The venture will help Tata Steel improve its overall market share and expand its customer and product base.
In the recent past, the company has witnessed turbulent times. For the first time in its history, it encountered closure of critical mines with stagnating global steel demand and surging imports adding to its woes. As a result, margins were under severe pressure. But staying alert to the dynamics of the steel industry and remaining responsive to it has enabled Tata Steel to manage the impact of these challenges and come out stronger. The group has seeded several initiatives and projects that will bear fruit in the coming year. A tightening of processes has enabled Tata Steel to become leaner and more agile than ever before, and an ongoing focus on continuous improvement is helping them innovate to achieve even greater efficiencies.
India’s economy went through a mix of highs and lows over the last few years. While the Indian GDP growth number showed an increase, many large infrastructure projects announced by the government are yet to take-off and this has resulted in subdued domestic demand. Apart from this, there was a surge in imports from China, Japan and Korea, which adversely affected the supply demand balance and led to a sharp drop in domestic steel prices. This had a direct impact on Tata Steel’s revenues. The company also had to face disruption in its mining operations due to regulatory headwinds and for the first time had to purchase iron ore from domestic and international sources. As a result, it faced significant pressures on its supply chain that adversely affected costs.
Rising To The Occasion
Despite this unprecedented situation, Tata Steel was able to mobilise internal resources effectively to mitigate the impact on profitability. Measures related to sourcing, logistics and manufacturing were taken to reduce impact on cost. The company, with help from domestic ore suppliers, ramped up its ore stacking capacity at the plant to minimise disruption to the supply chain. Logistics related costs were controlled by designing a coastal network and providing inland rail transport for imported ore. The company also undertook measures such as increasing the variability of input fines in the pellet plant and scrapping charges in steel making to reduce manufacturing costs. To counter tepid demand conditions and the surge in supply due to imports, Tata Steel focussed on product enrichment and strengthening its marketing franchisee which has now grown to 65 distributors and over 9,000 dealers.
Tata Steel has taken several strategic initiatives to counter challenges in all its geographies. Some key initiatives in India include the greenfield expansion project in Odisha; entry into the steel doors segment under the brand name Pravesh. Also, Kar Vijay HarShikhar operations programme led to improvement projects across the value chain resulting in savings of over Rs 1,800 crore for the company. In Europe, the company’s market differentiation strategy will help develop a sustainable long-term position in its chosen markets and the New Product Development pipeline is enabling the launch of new products. In addition, an innovative new iron making technology is being piloted which could improve resource efficiency.
(This story was published in BW | Businessworld Issue Dated 11-01-2016)