There has been a huge upturn in Tata Steel’s financial performance in 2010-11 when compared with the previous year. What do you attribute this to?
TSG’s financial performance may be attributed to several reasons. Despite the fact that delivery (of around 23.5 million tonnes in 2010-11) was flattish, we have had a better product mix during the year. In FY 2011, global steel consumption went up significantly, driven by robust demand in emerging economies and a slow recovery in the developed economies. Our captive raw material assets helped us mitigate the impact of rising and fluctuating raw material prices. Our focus on a value-added product mix, an area where we are differentiated and where we have better margins, and of course our branded product offerings in the retail segments, where we have crossed a million tonnes in both flat and long products this year, have all contributed to the upturn in TSG’s financial performance in 2010-11. All this was possible due to the untiring efforts of all our employees.
What were the critical factors that affected Tata Steel’s growth and performance in 2010-11?
Tata Steel Europe has also generated encouraging financial results. What were the reasons for this rebound, and what are the challenges it faces in the months and years ahead?
The financial year 2010-11 witnessed positive EBITDA in each quarter, resulting in a turnaround of $1.2 billion year-on-year. The profit after tax also benefitted from the sales proceeds from the Teesside sales. The fourth quarter of last year registered very good delivery performance. The EBITDA in the fourth quarter was $350 million compared with $89 million in Q3.
The focus now is on the value side of the business and Karl Koehler [managing director, Tata Steel Europe] has put in place a strategic road map to achieve this. This road map has as its key objective the strengthening of customer relationships of the European business, which will be achieved through a customer-oriented market differentiation approach, technical innovation in products and processes, operational excellence and cost leadership.
What will be the impact of The Odisha Project, when it comes into production, on Tata Steel and its long-term prospects?
The plant will manufacture high-end flat products to cater to our customers in the automotive, oil and gas, construction and capital goods sectors. The advanced and ultra-high-strength steels that we produce in this complex would specially help our customers in the automotive sector.
What do you reckon are the challenges facing Tata Steel, at home and abroad, as it seeks further growth?
Many issues lie before the steel industry in its attempts to grow and be able to provide adequate support to the economic growth. Some of them include availability of land, raw materials, environmental issues, infrastructure growth, intensity of steel consumption, human resources, government focus on infrastructure development, etc.
Large groups of people have been at the receiving end due to the behaviour of irresponsible business organisations. This has created scepticism among people. We need to address this scepticism with our genuine intent. We need to understand the local people and their aspirations. We need to have a communications cascade to address misguided and unwarranted apprehensions.
There are fears of transition among the locals from an agrarian to an industrial society. There are problems arising out of the aspirations of the people with regard to rehabilitation and resettlement, generation of employment opportunities, boosting local entrepreneurship, change in status of women, etc.
The changes in environmental regulations while according clearance to steel plants and mines has resulted in project delays. The uncertainty in the clearances given, which have often been withdrawn post clearance, has also created new challenges to the steel and mineral industry as these are very capital intensive and have long gestation periods.
How does Tata Steel see itself evolving over the next five years? What are the company’s plans and projections?
In terms of growth, the TSG’s vision is to become a global steel producer with an annual production capacity of 40-50 million tonnes.
This interview is a part of the cover story of the August 2011 issue of Tata Review in which ten Tata CEOs talk about the past, present and prospects of the companies they head: