Tata Group chairman Natarajan Chandrasekaran is optimistic about the steel industry’s prospects in the post-pandemic era, citing strategic moves the conglomerate has made in recent years to reinforce its structural and financial strengths and tap future opportunities.
“The steel industry is also entering a phase which will see better spreads enabled by robust demand and geo-political factors,” Chandrasekaran said in the annual report of Tata Steel released today.
“The strategic moves your Company has made over the last few years has given it the structural and financial strength to capture the opportunities that arise going forward, while ensuring its resilience in the face of uncertainty and a dynamic operating environment,” the group and company chairman said in a message addressed to shareholders.
Chandrasekaran added: “As we continue to position ourselves to capitalise on the opportunities of the coming decade, we will strive to be a leader in the transition to a greener economy – aiming to create a virtuous cycle of growth and returns for our shareholders”.
Tata Steel posted record consolidated earnings before interest, tax, depreciation and amortisation, or EBITDA, a measure of profitability, in the 2020-21 financial year. The performance was driven by higher steel prices, better product mix and measures to boost efficiency.
EBITDA excludes expenses associated with debt by adding back interest and taxes and serves as a metric of a company’s earnings before accounting and financial deductions.
Chandrasekaran wrote: “In FY 2020-21, your Company achieved its highest ever consolidated EBITDA of Rs 30,892 crore with 71% Y-o-Y growth, translating to an EBITDA per tonne of Rs 10,838 and an EBITDA margin of ~20%.”
In the year, the company also recorded its highest-ever free cash flow of Rs 23,748 crore. Chandrasekaran said the cash flow had been driven by efficient management of working capital and a strong focus on cash.
Tata Steel’s domestic operations are becoming cash-positive. “Tata Steel India was cash positive in Q1FY2021, a significant achievement given the pandemic. Company has reclassified Tata Steel South East Asia operations to ‘Continuing Operations’ from ‘Held for Sale’, on the back of a 50% increase in EBITDA to Rs 549 crore. This was enabled by higher prices and a focus on raw material cost reduction,” Chandrasekaran said
Tata Steel India, Tata Steel Netherlands and Tata Steel UK have ventured into the steel recycling business, which he called “a definitive step towards a lower footprint production process across emissions, resource-use and energy consumption.
He noted that during the year, the company sent out its first raw material consignment of ferrous scrap for trials from its scrap processing plant in Haryana’s Rohtak
In the post-pandemic era, the world will inevitably be different, the group chairman predicted.
“Recent years have been marked, for example, by elevated geo-political volatility, accelerated technology disruption and greater action to mitigate climate risks, among other important global trends,” he said in the message coinciding with the second wave of Covid-19 infections in India.
“The pandemic has accelerated many of these shifts, while underscoring the pace at which we need to act to remain ahead of the curve”.