Tata Steel Annual Report 2022-2023 (2024)

At Tata Steel, while we generatefinancial capital through our businessoperations and financing activities,we strive to optimise returns for ourproviders of financial capital andmaximise surplus funds. We investour surplus in attractive growthopportunities in our core market andraise finance based on prevailingmarket conditions, seeking optimalcost and flexible terms. Our long-terminvestments are strategically focussedon business sustainability and growthwhile maximising returns for ourproviders of financial capital.

During the past year, despitefacing challenges such as inflation,high interest rates, and commodityprice volatility, we demonstrateda resilient financial performance.The consolidated revenues stoodat ₹2,43,353 crore and consolidatedEBITDA at ₹32,698 crore, with anEBITDA margin of c.13%. ConsolidatedProfit after Tax stood at ₹8,075 crorewhile cash flow from operations stoodat ₹21,683 crore. Considering theperformance, the Board recommendeda dividend of ₹3.60 per fully paid-upequity share.

Adverse realisations stemming fromelevated commodity prices and volatilesteel prices had an adverse impacton our working capital. However, weeffectively managed to maintain controlover our debt levels on a gross basisthrough optimisation of cash flows andrigorous operational management. InIndia, our cost improvement initiativesthrough Shikhar25 yielded significantsavings and value protection ofc. ₹6,309 crore while in Europe, ourSustainable Profits Programmesgenerated savings of c. €112 million andc. £52 million for Tata Steel Nederlandand Tata Steel UK respectively.

`0 crore

Consolidated capitalexpenditure (FY2022-23)

In India, despite RBI increasingbenchmark rates, we diligently keptour cost of capital in check throughlong-term/short-term rate arbitrageand a balanced mix of fixed and floatingrate debt. To support our growthaspirations, we engaged in capitalraising activities through a two-trancheNCD issuance at competitive yields,totalling ₹4,150 crore, which garneredstrong investor interest. Additionally,we also ventured into overseas bondissuances for furthering our growthplans. By leveraging our longstandingrelationships with lenders, wehave been able to secure funds onfavourable terms across our range ofrequirements.

Prudent capital allocation remainedour central focus, with a key emphasison striking a balance between growthambitions and maintaining liquidityand a healthy balance sheet. Wesought an optimal capital mix to fuelour growth aspirations. During the past year, we directed our financialcapital towards strengthening ourIndian operations and completion ofthe ongoing 5 MnTPA expansion atthe Kalinganagar Plant and enhanceour position in high-end value-addedsegments. Of the total consolidatedcapital expenditure of c. ₹14,142 crore,we allocated over c. ₹6,200 croretowards speedy completion of theongoing Kalinganagar Project whichincluded commissioning of valueaccretive 6 MnTPA Pellet Plant andPickling Line & Tandem Cold Mill aspart of the build of the 2.2 MnTPA ColdRolling Mill Complex, aligning with ourvision to become a 40 MnTPA company,in India, by 2030.

Furthermore, as part of ourdecarbonisation strategy, we allocated₹2,600 crore towards the establishmentof a 0.75 MnTPA Scrap and EAF basedlong products plant with a targetedcompletion by FY2024-25.

We also successfully completed theacquisition of Neelachal Ispat Nigamlimited (NINL) at an investment of₹12,100 crore and restarted operationswithin 3 months of its acquisition.

In Europe, we allocated a capital of€65 million for transitioning to steelproduction through Direct ReducedIron process using green hydrogen,facilitated by an Expression of Principleson decarbonisation signed with theDutch Government for our IJmuiddenplant. We have also undertaken theblast furnace relining project at the costof c. €125 million. Furthermore, at TataSteel Nederland BV we are diligentlybuilding a strong cash reserve positionto facilitate our green transition.

Looking ahead to the currentfinancial year, with a planned capitalexpenditure of ₹16,000 crore, we planto accelerate capital expenditures tocomplete Kalinganagar expansion andpursue downstream projects in Indiathat create additional value.

As for the debt deleveraging, weprioritised deleveraging over the lastfew years and brought down thegross debt by ₹40,767 crore overFY 2020-21 and FY2021-22, with thegross debt of ₹75,561 crore outstandingas on March 31, 2022. We intend tostrike a balance between growth anddeleveraging. Accordingly, we allocatedlarge capital towards the acquisitionof NINL and towards growth capitalexpenditure in India. Allocation ofcapital for growth, coupled withhigher volatility in earnings & workingcapital requirements resulted in theconsolidated gross debt of Tata Steel toincrease in FY2022-23 to ₹84,893 croreas on March 31, 2023, with strong creditmetrices. However, we intend to resumeand continue deleveraging effortsin the current financial year, with atarget of reducing debt by US$1 billion.Additionally, we plan to release moreworking capital through inventory liquidation and enhance internalcash flow.

Also, the amalgamation of eightgroup companies into Tata SteelLimited, which is underway, is expectedto create operational efficiencies,reduce cost and generate financialsynergy in the coming years.

For our UK operations, during thelast year, we effectively addressed thefuture funding risk stemming fromasset-liability mismatches in the BritishSteel Pension Scheme (BSPS) throughan insurance buy-in of up to 62% of theBSPS liability. The remaining 38% hasalso been transferred to the insurancecompany in Q1 FY2023-24.

Our disciplined approach tomanaging financial capital saw theinternational rating agencies reaffirmthe Corporate family ratings, ‘BBB-’by S&P and ‘Ba1’ by Moody’s. Bothagencies revised their outlook from"Stable" to "Positive." Domestic rating agencies too reaffirmed an AA+ rating,indicating a strong credit profile androbust operating performance.

On the sustainability front, aligningwith the carbon neutrality andleadership in ESG ambitions, in India,we use a carbon-adjusted internal costof capital of US$ 40 per tonne of CO₂forcapital project appraisals. This strategicapproach will ensure alignmentbetween capital allocation and ourlong-term decarbonisation strategy.Moreover, we are exploring avenuesto raise green financing to supportinvestments in sustainability-relatedinitiatives.

Overall, our financial performanceand capital management strategies aregeared towards maximising returns,driving growth, and ensuring the long-term sustainability and success of ourbusiness.