June 27, 2008 | The Economic Times

Tata Steel plans pooling of raw materials

Tata Steel, India’s largest steel company and the world’s sixth-largest by capacity, plans to form an international company for consolidating its raw material assets that are spread across the world and which could eventually be used to raise funds for future acquisitions.

Tata Steel, which bought out global major Corus last year, said this while announcing its first consolidated fiscal year earnings that saw its net profit more than double from last year. Its revenue is now a shade below India’s largest private sector company, Reliance Industries.

“We will reorganise our group structure to unlock shareholder value over the next 6 to 12 months for growth in raw material assets and new market strategies,” group chief financial officer Koushik Chatterjee said on Thursday. “We are looking at an overseas group structure below Tata Steel to create the appetite for acquisitions. Since it would require capital, we are looking at various options,” he added.

Tata Steel owns raw material assets such as coal and limestone mines through joint ventures or completely, with the assets spread across countries such as Australia, Oman and Mozambique.

The consolidated full year net profit for Tata Steel stood at Rs 12,321.76 crore, compared to Rs 4,165.61 crore, due to contribution from Corus businesses. The consolidated revenue for the full year totalled Rs 1,32,110.09 crore, compared to Rs 25,650.45 crore last year. Anglo-Dutch steelmaker Corus was acquired in January last year for $13 billion.

According to the standalone results for the year, Tata Steel’s net profit rose 11% to Rs 4,687.03 crore, while revenues also grew 11% to Rs 17,985 crore. Shares of Tata Steel rose 1.9% to Rs 756.55 on the BSE on Thursday.

“Ownership of raw materials and a continuous improvement in production have been the key to Tata Steel’s profitability. In fact we’ve believed in owning raw materials for the past 100 years,” said managing director B Muthuraman while elaborating on the century-old company’s performance.

Tata Steel and state-owned SAIL have largely been able to withstand raw material price fluctuations due to captive iron ore mines. Tata Steel is also one of the least cost markers of steel in the world. Other private steel companies, hit by steep iron ore and coal prices, have passed on the hikes to the customers, prompting the government to clamp down on price increases to control inflation.

“Although we have promised the government to hold prices till July end, high coke prices may force steel companies to reconsider their stand,” said an industry executive. Tata Steel imports one-third of the total coal it needs for local production. Coal prices have risen by $200 per tonne over the past three months.

Tata Steel faces no such restrictions overseas as Corus, which buys both coal and iron ore, has passed on all price increases to customers. Tata Steel and Corus together sell more than two-thirds of their production in Europe.

Tata Steel plans to increase its domestic production to 10 million metric tonnes by 2011, from the current 7 million tonnes. It is planning to spend about Rs 3,000 crore to build a new 1.5 million tonne cold rolling mill in Jamshedpur.