Domestic demand for steel looks upbeat on the back of the government’s focus on boosting infrastructure and increased rural spends, feels Tata Steel’s managing director TV Narendran. The company, which posted its April-June results earlier this week doubling its net profit to Rs 1,934 crore compared to the last year’s, feels that the coming days will see growing demand for value-added products, and Tata Steel is well poised to tap it. In a post-result announcement, Narendran shared his views on various aspects of the industry with a group of journalists. Excerpts:
What is the share of value added segment in the sales right now?
If you look at the automotive segment it is 20%. Within the industrial projects business there is quite a bit of value added products which adds another 10-15%. Then if you look at our downstream businesses, which is tinplate, wires division, pipes business, etc, then it is another 15-20%. So, overall, it is around 50%.
How are you looking to ramp up and is there a target for it?
Obviously, we would always want to go down that path because one of our objectives is to reduce the sensitivity to the cyclicality of the steel business. So, there is a huge focus, for instance, on the services and solutions business that we are developing which is 2% of our revenues today and we want to take it to 20%. On our ‘Pravesh Doors’ product, we currently book 15,000 doors a month and by the end of this year it will double. From our Kalinganagar plant we are able to service the oil and gas segment which also falls in the value-added category. Now that a cold-rolling mill has started at Kalinganagar, it will help us add another 200 million tonne of downstream value-added products. Overall, the focus is to go downstream. If you see Bhushan Steel, that too has a high value-added product potfolio. In fact, realisations of Bhushan Steel are higher than Tata Steel because they sell very little commercial grade HR.
What will be the impact of rupee depreciation on costs for Tata Steel?
Generally, rupee depreciation hurts us on the limestone, coal and some of the other consumables that we import for use in the factory. But typically, Tata Steel benefits from depreciation because weak rupee helps keep domestic prices stable, makes exports more lucrative and therefore net-net weaker rupee is positive for Tata Steel.
What is the plan for simplification of South East operations?
We have done some work. We are obviously looking at all options and then we will take a call during this year.
There is some build-up in long products inventory. Could it pressurise prices going forward?
To some extent it has. That is why long product prices have dropped a bit. But this happens everywhere because construction activity stops during rains and access to many parts of India gets cut off. So the activity gets affected in July-September. But now rains are in patches and, hence, not seeing that kind of reductions that we used to see earlier. In the last week, for instance, the prices of long products have gone up.
How do you see the domestic demand, especially in the light of upcoming polls?
In the year leading to elections there’s more spending on the ground which helps in mutliple ways. But there are some structural changes also which are helping. To me GST, demonetisation, etc, have skewed things towards the organised sector than the unorganised one. Also, rural electrification helped rural demand, if you look at appliances or things that required electricity have gone up. The road connectivity to villages has also helped.