Tata Steel to look at utilisation of cash flows to grow organically

Tata Steel Saturday announced that it will acquire the steel business of Usha Martin Limited (UML) for Rs 4,300-4,700 crore.

Narendran: For us, this is a journey which continues. India is a growing and important market. Last year, we said that we would focus a lot more on India as we go about fixing the issues in Europe. I think forming the JV in Europe creates an enterprise which is sustainable and can stand on its own.

In India, the market is growing at 7-8 percent and we need to grow to keep pace with that. These inorganic opportunities come to us at different points in time and we need to be ready to seize it when it comes to us. The organic opportunities are more in our control and we continue to grow in Kalinganagar.

So I would say that we will evaluate each opportunity for what it is worth, for its value and take a call based on the attractiveness of the opportunity, our ability to go ahead with it. Obviously, we are conscious of our balance sheet and the debt on it and what we can and cannot do, but we believe that a good time in the cycle and the steel market globally and in India are quite strong.

Narendran: It is on our table simply because it is going through the court at this point in time. We will go through the process, we will cross the bridge when we reach there. However, as of now, we are part of the process and we will wait to see what the outcomes are of the court.

Chatterjee: As Narendran mentioned, we look at each of these growth opportunities in its own merit and in the holistic manner as to where it takes us from profitability, value creation, and the balance sheet structure is concerned. So with the competition of the JV in Europe, we would be reducing debt by about Rs 20,000 crore or thereabouts. That will be the first step.

Second is, if you look at the current level of earnings and cash flow generation, we have definitive plans of gradually reducing our leverage, while we are still going to grow organically in Kalinganagar.

So, we are looking at positioning ourselves on a net cash flow level after the growth. I think the next three years, we would be happy to maintain our balance sheet post the deconsolidation of the JV, use the cash flows mostly for the organic growth and the surplus cash flows then to be deleveraged.

We are looking at parts of the portfolio also which is also a part of the ongoing exercise. So, I think the question is, if you continue to grow in productive assets, if you continue to grow in assets which gives you EBITDA and cash flow from day one, and have the ability to bring in synergies, which may be proximate synergies, maybe structural synergies, our ability to leverage cash flows is most important and that is the whole focus that we have today. Every tonne of steel of new capacity has to be cash flow accretive and that is our whole focus.

As far as Usha Martin is concerned, when the transaction completes, I do not think it is going to be a leveraged transaction because even in Bhushan, our marginal debt equity has been 50-50. We have put in almost Rs 18,000 crore of equity in that company, which is not levered equity, pure equity, and we had about Rs 16,500-17,000 crore and we are seeing as part of the phase one of the integration and based on the market currently, the cash flow generation is healthy on that.

Similarly, in Usha Martin, we will structure it in a manner that it does not cause stress either to that individual business or to the overall balance sheet.