Tata Steel’s FY 23 capex could exceed Rs 12,000 crore, and the company would continue to deleverage

Tata Steel's FY 23 capex could exceed Rs 12,000 crore, and the company would continue to deleverage

“Our capex for the year is Rs 12,000 crore, we will review it after six months and take a call on how we are progressing,” said TV Narendran, chief executive officer and managing director. “We believe we can deleverage and grow,” he said. The management said that the capex amount may be increased after the half-year review as the company may finalise a multi-year capex programme.

In a conference call with reporters, Tata Steel Ltd said it had budgeted Rs 12,000 crore in capital expenditure (capex) for 2022-23, which may increase when the firm conducts a mid-year assessment of its growth plans. Around Rs 8,500 crore to Rs 9,000 crore of the proposed capital would go to Indian projects, with the rest going to international ventures.

Koushik Chatterjee, executive director, and chief financial officer said, “Our cash outflow for the capex in the year (FY22) was Rs 10,522 crore, which is well within our earlier guidance. We continue to focus on deleveraging while advancing our strategic growth priorities; our focus is on the completion of the Kalinganagar expansion. Tata Steel has generated strong free cash flows of Rs 27,185 crore for the year despite higher working capital, taxes, and capex.”

On May 3, Tata Steel reported a consolidated net profit of Rs 9,835.12 crore for the quarter ended March 2022, up 37.3 percent on-year, despite a significant surge in international coal prices and the inflationary impact of various commodities. India’s largest steelmaker reported 39 percent year-on-year (YoY) growth in consolidated revenue at Rs 69,323.50 crore during the fourth quarter, with India operations reporting a 34 percent growth. European business for the company clocked 53 percent growth in the same period. The firm also announced a stock split at 10:1.

“The coal cost has been very volatile, but the expected impact on coal cost in this quarter to be $100 per ton higher than last quarter in India and about 50 euros per ton higher in this quarter compared to the previous quarter (overseas),” Narendran said. The company is upbeat about domestic demand, even as commodity prices continue to be high.

“We are expecting demand in India to continue to be strong. There’s been some hesitation to buy because there was a concern that the steel prices are too high and of course, it was hurting some of the customers as far as working capital is concerned. People are also watchful to see what’s happening in the international market. Fundamentally, the demand has been strong in India, commercial and passenger vehicles have been strong and construction activity is picking up as infrastructure spend is growing,” Narendran said.

He said that the international demand will be “reasonably strong” despite concerns over China demand slowing due to the COVID impact given the global infrastructure spend and the disruption of supply from Russia and Ukraine. Tata Steel’s gross debt stood at Rs 75,561 crore at the end of fiscal 2021-22 after the company repaid a debt of Rs 15,232 crore during the year.

The company said that net debt declined to Rs 51,049 crore, which led to an improvement in net debt to EBITDA (earnings before interest, tax, depreciation, and amortisation) ratio at 0.80 and net debt to equity ratio to 0.52. “For deleveraging, we have a policy for many years now of a billion-dollar every year, which we’ve been overperforming in the last three years. This policy continues. If we look at our cash flows, we have been deleveraging at a much higher rate than that,” Chatterjee said.

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