Export duty is unfortunate. Why should people begrudge an industry or a company making profits? Tata Steel’s TV Narendran asks

What makes Tata Steel so strong?

Tata Steel is strong because of its culture, its people, its commitment and the fact that we have consistently worked on improving ourselves.We have recalibrated ourselves continuously, we continue to be one of the lowest cost producers of steel which ensures that we survive in a down cycle; in the up cycle everyone looks good.

It is what you do in the downcycle which matters and we continue to push our boundaries as far as customer relationships and products are concerned. We do a lot of innovative work in the market place and that helps us protect our revenues as much as we could in a cyclical business while at the same time, being brutally focussed on our costs and efficiencies so that we continue to be one of the lowest cost producers of steel. We also have a long value chain which ensures that we can ride the cycles better.

Tata Steel made all the right headlines last year and record profit. I remember using this phrase on television that steel is the new gold. Will FY23 be a year of slightly rusty or are things looking up? Will steel continue to shine on the path of gold?

First and foremost, this is a cyclical business but what I have always said is that the steel prices in the down cycle in this decade will be higher than steel prices in the downcycle in the last decade, particularly in India, simply because India after a very long time is investing a lot on infrastructure.

Steel is very dependent on micro economic issues and investment led growth; India is traditionally a consumption led growth. This focus on investment-led growth, infrastructure is great for the steel industry in India and India is one of the best places in the world to produce steel. We have iron ore unlike China, unlike Japan, unlike Korea. For many reasons, the steel industry in India and certainly Tata Steel is well positioned to capitalise on.

Diwali, Dussehra, Christmas everything is taken care of. How did you react when first time press compared Tata Steel numbers with for the year gone by?

I think that is a good comparison to have. TCS has been a shining star for the group and for Tata Steel to match TCS – I do not know when we last did that – was a great feeling but honestly we are in very different businesses. As part of the same group, we hope TCS continues to do very well. We are in a cyclical business. We have ups and downs. So it is of media interest more than anything else.

Par nazar lag gai na because after that the export duty came.

Yes that is true.

How has that damaged your business?

That is the unfortunate thing. Why should people begrudge an industry or a company making profits because ultimately private sector investment in India was being revived by the steel industry. The steel industry announced more than Rs 100,000 crore of investments. No other private sector industry had announced that kind of investment.

So somewhere, there were pressures to deal with inflationary issues and we respect that. But somewhere, India should be a big producer of steel, India should be a big exporter of steel. Steel investments happen in some of the poorest parts of the country. We are blessed with iron ore. So this is the classic opportunity to make in India, for India and for the world. So I think it is unfortunate.

We appreciate and respect that it has happened, but we hope that it will be removed soon because China, Japan and Korea together export 150 million tonnes of steel with hardly any iron ore. So why should India, which has iron ore, be worried about exporting 10-15 million tonnes of steel? That is the larger issue and it has obviously hurt the steel companies over the last few months.

But despite the duty on export, are you still making positive EBITDA?

Yes we are and like I said, we are one of the lowest cost producers of steel in the world. So we can ride the down cycle as well. As we have shown a few years back when steel price was $350 also. We made money but the challenge this time has been that coking coal prices have been quite high and that is 40% of our cost that is linked to global geopolitical issues. But yes, we know how to survive in a down cycle also.

I am assuming that the real impact of coking coal advantage will only come for the next quarter because what you are burning in this quarter would be coal bought at higher levels?

Absolutely and that is right because normally most of the coking coal comes from Australia. So what you buy today comes to you after two months and it helps or hurts the cost two months later. So there is a lag. Last quarter’s cost will be impacted by the coking coal we bought the quarter before that and the lower coking coal prices will help us from the next quarter.

But in an environment like this, which shows a weakness in the currency or strength in dollar, the tailwind which was China has become a headwind and Europe is going through a serious energy crisis. From inflation, now the fear is recession. So demand will get challenged?

Globally yes, there is a concern but I am a bit more optimistic about Indian demand.

Are you as optimistic as Mr Chhatwal, the MD & CEO of ?

I think I am but I do not have the advantage that he has with G20 but certainly if the infrastructure investments that the government has announced start flowing through, we will have a few years of strong demand. If I look at steel consuming sectors, pretty much everyone is strong, construction is quite strong apart from what happens during the monsoon, supply chain, investments in supply chains, warehousing because of e-commerce companies, passenger vehicles and commercial vehicles are back where they were four years back. If more people travel, more hotels are built, I think that is good for us.

India is the fifth largest economy in the world. We are one amongst the top in terms of the market cap, but for an economy of this size and for a sector like steel, it is very difficult and almost impossible to just be an oasis in an otherwise troubled environment. India business is growing but steel is a cyclical commodity. Given the recessionary fear, don’t you think it will have a ruboff effect?

Yes, it will have an impact but just like India is an island of economic good news relative to the rest, the steel industry will follow that sentiment. So basically what is happening is inflation in India is high but it is still comparable to what is happening in developed countries which have never been used to this kind of inflation right.

These are not growing markets even if you look at our footprint in Europe. If you have inflationary pressures on wage costs in Europe, you have to think hard because the market is not growing.In India, however, one can afford some inflationary pressures because one can scale up and manage those costs.

There are issues where India is much better placed demographically. Following Covid and the Ukraine war, supply chains are being rethought. People are looking at building resilience and not just optimising around efficiency. So it is a great time for India to be an option, because unlike Vietnam or Bangladesh or many other countries, India is not just a potential source but a potential market as well. So people are looking at investing in India.

There are many things which make it a sweet spot for India and like I said, we are in an industry which is very dependent on macroeconomic factors. We will ride on exporting 10% of what we produce. That part of the business will reflect what is happening globally. The other thing where we think things will be better going ahead is less exports from China, Japan and Korea as all of them are looking at producing steel for domestic consumption rather than importing raw materials and exporting steel.

Where do you see Tata Steel in three years and five years from now?

In the last few years, we have doubled footprints in India. In the next few years, we want to double our footprint in India again.

Via the organic route?
Next few years will be organic. The last few years was inorganic. We grew from 10 million to 20 million tonnes in the last seven-eight years. We want to get to 40 million tonnes by 2030 but I am assuming that the export duty will not be there for long because we have always assumed 10-15% will be exported. So 35-40 million tonnes is where we will be by 2030 because it takes a while to build a steel plant but because of our acquisitions today, we can grow at any pace we want. We do not have to acquire any new sites to achieve that ambition.

You can do it without having an effect on the current balance sheet?
That is the other advantage with organic growth. One can pace oneself. The cash flows of the India business is strong enough to allow us to grow without adding to the debt.