Tata Steel embarks on promising debt reduction journey

One more good year of high demand and lucrative margin will change the fortune of Tata Steel, which has reduced nearly Rs 30,000 crore debt in 2020-21. 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 one year.

Even after spending Rs 6,979 crore as capital expenditure Tata Steel generated a free cash flow of Rs 23,748 crore in the last financial year. It made a net borrowings repayment of Rs 30,560 crore. If the company can make similar repayments in 2021-22, the net debt will fall down to around Rs 45,000 crore and it can envisage a plan to become net debt free by 2024-25, according to experts in the industry.

"At one point of time, the financial situation of Tata Steel was so disappointing. It was when the management has taken the decision to focus on Indian operation and ring fence the European business and make it less loss making," said an executive from the group.

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In addition, the wheel of fortune has turned in favour of the whole steel sector. The steel prices have more than doubled to nearly $1,000 a tonne with recovering demand, lagging supplies and lower import pressure. It has helped the most of the Indian steelmakers, which exported the ferrous metal to even the largest steel making country, China. "The steel demand improvement is outpacing supply, leading to strong increase in prices and spot spreads," said a Mumbai-based analyst.

The 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 and it 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 3 times growth in annual profit at Rs 16,695 crore in 2020-21.

The experts say that if the impact of second COVID-19 wave recedes fast, Tata Steel will be able to embark on calibrated growth journey, shedding the past liabilities.

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