'Tata Steel can unlock a lot of value with less capital downstream': CEO & MD T V Narendran

Value for a steel producer may not necessarily be derived by its production capacity, according to Tata Steel chief executive TV Narendran and chief financial officer Koushik Chatterjee. Changing market dynamics are making it crucial for companies to look for value across the chain, making value-added products a "must-have" rather than a "good-to-have", they tell Nikita Periwal. Edited excerpts:

A certain section of industry is looking at adding capacities while another wants to focus on value. What is Tata Steel's stance?

TV Narendran: We want to have options and exercise them properly. Unlike earlier when land was a challenge, today we have the option to go to 50 million tonnes with our existing sites. If we include Maharashtra, where we are speaking to the government for 3,000 acres of land, we can build another 15 million tonnes. So, we have the option to go to 65 million tonnes, but do we want to build all that in a hurry? We will wait and see because the cost structure of the industry is changing very rapidly.

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How does cost impact these decisions?

Narendran: The biggest advantage that the industry had is that iron ore was available in plenty and at a reasonable price. Today, it is expensive, so value is lost even before the ore is converted. So, we need to really look at where the value-creation opportunity is in the value chain. At one end, it is commoditised where we are always under the threat of China, and at the other end is more value-added and downstream. In some sense, you can unlock a lot of value with less capital in downstream. We look at the whole value chain and keep the optionality of growing upstream, but not necessarily pursue it blindly.

Koushik Chatterjee: Optionality also means we are phasing growth. Capacities come in lumps while the market grows more linearly. We will grow with the market in bands. Our annual capex is now scaled up to about ₹20,000 crore a year. So we are putting money and growing, but there has to be a sequence in this madness. And this sequence is important to grow with the market where you can derive the premium.

What about export markets?

Narendran: Export markets are going to get tougher. The US and Europe have built walls, and in markets like the Middle East, you have to compete with the Chinese, who will continue to export 100-120 million tonnes of steel at prices which really make no sense.

A few years back, the narrative in the steel industry was adding capacities. When did this change? How have policy changes played out?

Narendran: Earlier, iron ore mines were being auctioned at 40-70% (premiums). But suddenly, all of us started bidding aggressively. So partly because of policies, and partly because the private sector has been a bit short-term in the approach, we have created a situation where we are losing value in our biggest advantage, iron ore, even before it is converted to steel.

Chatterjee: For Tata Steel, downstream is not a new strategy. We have been in tinplate for 100 years, nearly 100 years in tubes and at least 50 years in wires. So, we have had a balance, and perhaps more focus on upstream than what we are having today. But the market is changing, and to ensure that we have a higher market share in value-added products rather than commodity products, it is important to change the game in downstream, especially at the high-end.

Will growth parameters for the industry change from production capacity to heft in value-added products?

Narendran: Yes. It is a long value chain with multiple applications, and you can decide how far you want to go down that value chain and where to stop. Our job is to look at the entire value chain, see where the pockets of value are and be a strong player. I may have a situation tomorrow where I have a downstream plant in the South and may buy hot-rolled coils from JSW. So, we can have a strategy which is independent of upstream. It is an evolving complex situation. The largest steel company in the world is not the most valuable, and the most valuable is not the largest steel company.

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Have you prioritised expansion at Neelachal Ispat over Kalinganagar because of relatively higher margins?

Narendran: We have just finished the expansion at Kalinganagar and are ramping up there. The Neelachal site is ready, and we can start work faster there. That is the only reason.