Tata Steel has a couple of things going for it in the new year — but before we get into that, 2017 was a bit kinder to it than the preceding two years.
And we are not saying that, but the CEO and MD of Tata Steel, T.V. Narendran himself, told a gathering of employees and some reporters here recently that 2017 was somewhat better than the previous two years for the company.
Looking Back: A Recovery in Steel Demand, Prices
In 2014, Tata Steel dealt with some of the challenges relating to the closure of its mines because of changes in regulations. The next year, it dealt with the challenge posed by neighboring China, which had increased its export volumes globally (including to India). Tata Steel continued to perform and grow in these two years, Narendran said.
According to him, 2017 saw “a recovery in global steel demand, prices and trade,” leading to better-than-expected performance by India’s steel sector. The year, he added, not only saw India becoming the third-largest steel producer in the world, it managed to successfully reverse the trend of increasing imports, as it became a net exporter.
Narendran was also positive on India’s National Steel Policy 2017, which draws up a long-term road map for steel.
Another point which went in favor of the steel sector, Narendran pointed out, was the rollout of the Goods and Services Tax (GST), which had positive implications across the company’s value chain in India.
The Year Ahead
Tata Steel has big plans for 2018.
Its board recently approved an expansion from 3 million tons (MT) per annum of its Kalinganagar plant in Odisha province to 8 MT. The plant’s expansion will be completed in four years and is expected to meet demand in automotive, general engineering and other valued-added segments. The project will be funded through a mix of both debt and equity, according to the board.
Meanwhile, Tata Steel Ltd has initiated the process of raising U.S. $2.15 billion in six-year syndicated loans as part of its $5.1 billion loan program to refinance its existing debt. It has already appointed a domestic investment bank to manage the issue. The Indian steelmaker is seeking $2.15 billion in six-year syndicated facility to refinance loans in the books of TS Global Holdings Pte and NatSteel Asia Pte on an immediate basis.
Analysts, too, seem positive regarding Tata Steel’s performance in the coming years. Credit Suisse, for example, has maintained an “Outperform” rating for the company.
Citigroup has said Tata Steel Ltd notes that management had indicated plans to double capacity in five years. Tata Steel’s plans to double capacity in five years providing growth visibility, while attractive M&A and the Tata-Thyssen joint venture could take the stock higher. Strong spreads, captive India iron ore, improving leverage and reasonable valuations should benefit the company, said its analysts.