May 05, 2003 | Business Standard

Tata Steel will have to clock Rs1000 crore PAT to achieve EVA goal

Jamshedpur: Tata Steel, which is endeavouring to become an economic value-added (EVA) positive company, would require to register a profit after tax (PAT) of Rs1,000 crore to achieve its target.

Simply put, EVA is the calculation of a company's net operating profit after taxes, minus a capital charge for the investment or capital employed in the business.

B Muthuraman, managing director, Tisco, said that based on Tata Steel's current investments, the company will have to post a PAT of Rs1,000 crore to become EVA positive.

He, however, clarified that the calculation was based on average prices of steel and not the actual price, and the company will strive to achieve the target by its own efforts, rather than depending on the market.

For instance, Muthuraman explained that the company posted a profit of Rs205 crore last fiscal, when prices were at a 20-year low.

Muthuraman said, "Had average steel prices been considered then, the profit would have been around Rs400 crore."

Similarly, in this fiscal when prices were at a 20-year high, profit based on average prices should be in the region of Rs550-600 crore.

But during the nine months ended December 30, 2002, the company recorded a net profit of Rs549 crore.

This implied that if earnings were based on actual prices, the company will be very close to becoming EVA positive this fiscal or by the next.

The company, which has made EVA positive as one of its prime goals, will strive to achieve the target on average prices, Muthuramn reiterated.

Last year, Tata Steel had launched its Vision 2007 programme. On the first anniversary of the launch, the company formulated a programme aimed at unleashing the creative potential of all its employees through a combination of best practices and improvement methodologies.

This programme was named ASPIRE - Aspirational Initiatives to Retain Excellence.

Muthuraman said ASPIRE was aimed at accelerating the improvement process towards becoming EVA positive.

Under this programme, the company has combined some well-proven techniques of improvement, such as total productive maintenance, Six Sigma, TOP, suggestive management, quality circles, and the Tata Business Excellence Model (TBEM) into the programme.

Muthuraman said, "TBEM will be the over-arching umbrella for all such initiatives." Tata Steel had drawn up a three-year rolling programme for ASPIRE to draw out the creative potential of its employees so that they too could contribute to the achievement of Vision 2007.

The company will be inviting the guru of value innovation, Chan Kim of INSEAD University, to kick off value innovation projects in Tata Steel.