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Informist, Thursday, Nov. 7, 2024

By Sunil Raghu & Akshay Johnson

AHMEDABAD/MUMBAI - Tata Steel Ltd. sees its capital expenditure for the financial year 2025-26 (Apr-Mar) falling below its spending in the current financial year or in FY24, the management said in a conference call with analysts Thursday. The company had reported its Jul-Sept results Wednesday.

The management said that almost all its planned spending on projects undergoing expansion is likely to be completed by the end of FY25 and the next cycle will only begin in FY27. The capital expenditure needs of the company's United Kingdom and Netherlands facilities are still on the drawing board, it said, and it would take at least 12 months for their spending cycle to begin. The capital expenditure of INR 190 billion that the company has already announced is likely to be completed over the next few months.

Tata Steel is currently expanding its Kalinganagar unit at a total cost of INR 270 billion, of which it has already spent INR 180-200 billion. Tata Steel's total production capacity at Kalinganagar will double from 7,500 tonnes per day to 15,000 tonnes per day by Mar. 31. Following the expansion, Tata Steel's total production capacity would rise to 26 million tonnes per annum by 2027, from 21 mtpa currently. 

Apart from the Kalinganagar, UK, and Netherlands facilities, Tata Steel will continue to fund the expansion of the capacity of its Nilanchal Ispat Nigam Ltd. unit to 5 mtpa from 1 mtpa currently. It also plans to add 800,000 tonnes per annum capacity at Ludhiana by March 2026 and start a 500,000 tonnes per annum facility at Jamshedpur for the passenger vehicles segment.

The management said global product prices currently do not support “significant” fresh capital expenditure. If steel prices were around $550-600 per tonne, they would be more comfortable and that would also justify fresh spending. Currently, global steel prices are around $450 per tonne, primarily because economic stimulus by China has distorted the dynamics of the global steel market.

However, the company management believes global steel prices bottomed out in Aug-Sept and will rise from here on. It believes Chinese steel exports to the world may be reduced as China has stopped approving new projects. China, which exports 100 mtpa per annum, is also expected to cut production by about 40 million tonnes this year.

The management said Tata Steel had raised product prices in October, but did not share the extent of the price hike.

Though the company appeared optimistic about steel volumes and the price outlook, it sees demand in the European Union continuing to be weighed down by subdued economic activity, including weakness in industrial output. The management said market conditions in Europe remain challenging, with spreads contracting in the near term, and so efforts are on across the company to control costs. The company hopes to reduce fixed costs for its UK operations by about £100 per tonne from current levels.

The company said its net debt stood at INR 888.17 billion and it would be comfortable with a gross debt level of INR 750-800 billion. With the next financial year being capex-light, and with higher production from India and the resultant cost benefits, the management told analysts it would aim for its long-term target of making $1 billion in repayments.

On Thursday, shares of Tata Steel ended 1.7% lower at INR 150.95 on the National Stock Exchange.  End

Edited by Rajeev Pai

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