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Economically India has come out better than what many would have thought

Forbes India put TV Narendran on the cover in July 2021 when Tata Steel, flush with reporting record profits, was paring down debt at a record pace. The stock had once again come in favour as investors fancied its chances over the next decade as the Indian steel industry consolidated around five large producers. The managing director of Tata Steel analyses the business and economy post Covid

Samar Srivastava
Published: Jun 9, 2023 11:49:01 AM IST
Updated: Jun 9, 2023 12:01:01 PM IST

Economically India has come out better than what many would have thoughtT V Narendran, CEO and Managing Director, Tata Steel Image: Mexy Xavier

When we met in 2021, we were recovering from the disruption that China had caused to the global steel industry between 2014 and 2016. We were seeing a period where steel prices were stabilising at higher levels. We had also crossed the Delta phase of Covid pandemic.

So at the time we would've been quite positive about a post-Covid recovery. Governments across the world were spending a lot of money on this and India had also started spending more and more on infrastructure, which was good. As the budgetary allocation increased, the on-ground spend followed.

Since then, India has been a strong story. The country has handled the situation well over the last couple of years – dealing with the impact of the war on the macroeconomic situation and the resultant geopolitical issues.

Economically, India has come out better than what many would have thought. India is able to continuously focus on growth through building infrastructure and investment, which is positive for the industry.

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If you look at the Indian steel market, you need to split it between the flat products business and the long products business. The flat products business is quite consolidated, because the top five players account for close to 90 per cent of the steel production. It makes for a structurally stronger and a more stable business. But it's also a highly capital-intensive play. It is therefore not easy for someone to come in and build capacity. Global players like ArcelorMittal or POSCO have a better chance than somebody starting from scratch in India and building big capacities.

Economically India has come out better than what many would have thoughtIn the long products business, on the other hand, the top five producers would probably account for 40 per cent of the capacity or less. It is a highly fragmented business with a number of small players in the clusters of Chhattisgarh, Punjab, and Gujarat. This is a high variable cost business, and not a high fixed cost business. So, while there is room for some consolidation, there is always a play available for the smaller players in this segment – the long products business.

On the overseas front, the UK business is where we have a challenge. Since we have grown well in India now, the UK business challenge is less material than it was earlier. Earlier the UK portfolio was 10 million tonnes out of 25 million tonnes, Tata Steel’s total production. Today, the UK business is only three million tonnes out of the total capacity of 32 million tonnes. It is thus a much smaller part of the overall business. So, while it's a problem, its materiality is reduced.

In a challenging year - FY23, Tata Steel reported Rs 8,000 crore in profit, which is not bad. It looks small when compared to Rs 40,000 crore profit that we had the year before. But a Rs 8,000 crore profit in the 120-year history of Tata Steel and in a downcycle, would feature in the top five.

(This story appears in the 16 June, 2023 issue of Forbes India. To visit our Archives, click here.)

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