In the steel industry, when the pricing cycle turns, operators have to go in for aggressive cost cutting and rationalisation of processes to overcome the profitability issue. Tata Steel, with its strong expertise of over 100 years was able to overcome the strife and come out unscathed.

The effects of the world economic downturn seriously impacted the company?s global operations in the second half of the year under review. The demand for steel declined by 26% in the UK and Europe in the third quarter compared to a year earlier and after a further contraction in the fourth quarter, demand had fallen by 57% in the UK and 44% in Europe compared with a year ago.

Its standalone revenues however grew marginally by 2% in the financial year 2008-09, over the previous year, to touch Rs 20,024 crore from Rs 19,480 crore. Its net earnings also managed to show a positive trend of 3.5% year on year growth to touch Rs 7,315.61 crore in 2008-09. However, margins declined from 41.93% to 38.83% in 2008-09, while the return on equity was at 18.33% as against 20.53% in the previous year. Things could have been worse but steps to ensure that they were not. According to Ratan Tata, chairman Tata Steel, ?Tata Steel has taken aggressive steps to meet the challenges of these difficult times through major initiatives in cost reduction, process improvement and production rationalisation.?

?The highest priority is being given to expanding steel producing capacity in Jamshedpur, and ensuring raw material security for the European operations which do not have captive iron-ore and coal resources?, he added. Production rationalisation is also being undertaken in Europe and the UK to right-size manufacturing facilities to be in sync with the lower off-take by the market. The same approach is also being taken in the company?s Asian subsidiaries.

Inventories were liquidated to release cash. Steel stock was brought down to 28 days by the end of March 2009 as against 71 days at the end of December 2008.The company bettered the specific energy consumption record set last year by achieving a new record of 6.594 GCal per tonne of crude steel in 2008-2009. An across-the-board cost-cutting initiative targeted and achieved 15% reduction in general administrative expenses.

In the 2008-09, the company commissioned the 1.8 million tonnes of crude steel making capacity at Jamshedpur which will be further augmented by 3 million tonnes through ongoing brownfield expansion by 2011. This will increase the Jamshedpur plant?s crude steel making capacity from 6.8 mtpa to 9.7 mtpa, at an estimated cost of Rs 13,900 crore.

This will also enable Tata Steel to strengthen its market share in the flat products segment and simultaneously reduce operating costs over a large volume of production. Raw material self-sufficiency for the consolidated entity is at 25% post the Corus acquisition. The management intends to increase self-sufficiency of raw materials to 50% in the medium to long term and has been actively looking at acquiring mines overseas. It has already acquired mines in Indonesia.

And, with the revival in the steel cycle as the global demand uptick, revenues in the quarter ended December 2009 have grown at a rapid clip with steel sales growing at 48.9%, over the same period of the previous year, to touch 1.59 million tonnes and net sales grew at 39% to touch Rs 6,307 crore. Buoyed by the other income factor net earnings more than doubled, and stood at Rs1,742 crore, for the quarter ended December 2009.

Amongst the new initiatives, the company would be looking at rationalising the Corus operations and also creating marketing alliances. The Tata Steel Board has approved a framework for a joint venture between the company and and Nippon Steel Corporation (NSC) for the production and sales of automotive cold-rolled flat products at Jamshedpur.

Clearly, the management seems to be working on getting its near term focus on the implementation of the ?Fit for Future? initiative.