Rising steel prices replenish Tata Steel's coffers; help loan repayment plans

Continuing spike in steel prices in the first quarter of the ongoing financial year is expected to help Tata Steel in further cutting its liabilities in large volume. Steel prices have increased nearly 10 per cent so far to Rs 72,000 a tonne in this quarter (April-June) after two recent price revisions. Thanks to high global demand and lucrative margins, Tata Steel has repaid Rs 30,000 crore of net debt in the last financial year.

Tata Steel's standalone EBITDA (earnings before interest tax, depreciation and amortisation) per tonne has jumped to Rs 27,828 in January-March 2021 from Rs 12,573 in the same period last year. "The 10 per cent increase in steel prices will have a proportionate effect on the EBITDA of Tata Steel as well," said an analyst with a global research firm.  

The steelmaker, which has been struggling with its $12 billion legacy acquisition of Corus Plc in 2007, has brought down its net debt to Rs 75,389 crore from Rs 1,04,779 crore in the last financial year. Even after spending Rs 6,979 crore as capital expenditure Tata Steel generated a free cash flow of Rs 23,748 crore. It made net borrowings repayment of Rs 30,560 crore. 

Industry experts estimated earlier that the net debt will fall down to around Rs 45,000 crore if the company makes similar repayments in 2021-22, and it can envisage a plan to become net debt free by 2024-25. According to the recent reports, the steel maker plans to make $1 billion prepayments to reduce its overseas loans. 

Tata Steel is at present focused on Indian market as the demand scenario is promising in the country. Indian steel prices continued to improve amidst robust demand and iron ore cost pressure and further upside potential from elevated import parity prices. Most of the steel consuming sectors have witnessed broad based pick up in the last one year. The steel consumption jumped by 19.5 per cent in January- March.

Consolidated EBITDA (including Tata Steel Europe) of Tata Steel has grown 71 per cent to Rs 30,892 crore. The major portion of EBITDA generated in India grew 62 per cent to Rs 28,587 crore. The Indian operation (including Tata Steel standalone, Tata Steel BSL (former Bhushan Steel) and Tata Steel Long Products) posted three times growth in annual profit at Rs 16,695 crore in 2020-21.

Tata Steel will be included in the 30-share BSE Sensex index after a gap of six months, replacing Oil and Natural Gas Corporation (ONGC) from 21 June. 

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