TV Narendran, MD & CEO, Tata Steel, spoke about the impact of rate cuts by the RBI, what can be done to revive growth in the sector, growth expectations and Tata Steel performance in this financial year and steel pricing among others during an exclusive interview with Swati Khandelwal, Zee business. Edited Excerpts:

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Q: Has the last five consecutive rate cuts by the Reserve Bank of India (RBI) in its monetary policy done anything to revive the growth sentiment or still there is a problem of too less too late?
A: RBI is trying to do, what it can. They are cutting the rates but the transmission is not happening. Thus, we will have to ask the banks that what they will do, however, they are also accepting that there is more to be done but they also have their limitations. So, the whole system has to look at how we have better transmission. From the bank's point of view, they will say the interest rate for small savings is still quite high. There are views that there are no concerns related to the availability of liquidity in the market but fundamentally India is a high cost of the capital country and till that is addressed, I think, the cost of doing business in India will continue to be a challenge.

Q: Do you have any specific demand/s from the government that should be addressed for the revival of the entire sector?
A: The most important aspect is how expenditure flows in the infrastructure in months ahead because construction is the biggest sector as far as steel is concerned, 60% of the steel goes to construction. Construction includes industrial, infrastructure, residential and commercial. Among these, residential is still bit soft but several things are happening on the affordable sides as more and more projects are being announced and more and more people are getting into affordable housing. The commercial sector is not too bad because a lot of private equity (PE) has come into the commercial sector, so a lot of foreign capital is flowing into that sector. The industrial segment is also well because of a lot of investments are going on in warehousing and supply chains. And, infrastructure is what is most dependant on the government, which was facing certain issues earlier, like a lot of contractors in that segment were not getting paid, I think the government is now trying to address the payment cycle in the segment. I feel infrastructure will not only create an activity for construction companies but it will also create an activity for automobile companies as you will have to transport a lot of things. It will also create jobs in rural and semi-urban areas because infrastructure work increases local activity which translates into employability. So, the single biggest lever in the government's side is infrastructure expenditure, which was announced in the budget, $1.3-trillion or Rs1 lakh crore and which has been done over five years and the government has been saying that they will accelerate that. Ultimately, when private spending will come? It will come if the profitability of the private sector improves and they have surplus cash to invest. If the private sector has to focus on deleveraging as well as investments then they will first prioritise on deleveraging. Even, Tata Steel has been saying if profitability is gets affected then we will first try to see how to continue with the deleveraging target and of course to face out a CapEx. 

Q: Do you think that there is a need for some specific policy initiative or changes on the taxation front for immediate results in the steel industry?
A: Whatsoever has been done on the corporate tax front is a good step. The second thing is to allow 15% tax for the new investment is also good. However, we were expecting that any benefit to the auto sector will help us in steel but they, the auto sector, have its challenges and they have been demanding 18% but it hasn't happened as it is both state and centre subject. Now, we are seeing that the auto demand in September was better than August, I think, the sales have been better in September than that of August, and if October is better than September then it indicates that there is a slight change on auto demand. I think auto is 20% of steel consumption, so we look forward to that. The other areas for steel consumption are oil and gas, which is reasonably okay.

The second part on which we are having talks with the government include RCEP and all that because we are always concerned about unfair imports. We are not concerned about import, which has always been there and I don't think that the steel industry ever before 2015 has complained about imports and we have 0-2.5% import duty. It is not so that the steel industry always complains about imports but it complains when the imports are unfair because steel industry has invested tens of thousands of crores in building capacity in India, we have invested to make in India and create in India. The best thing about the steel industry is that you create jobs far away from the urban centres, which have a big impact on local economic activity, wherever we are in. And, we should encourage steel companies globally to come and invest in India.

Q: So, let us know the kind of correction that is needed over here?
A: We should be sensitive to weather import go up, just now, it is still okay, it went up for 2-3 months. But we are always watchful because even if imports flood in for 2-3 months will have an impact on our demand. We have got a lot of support from the government and we look for the same because the speed at which we act on trade issues also have to improve and it has improved in the last few years and we look forward to more agility in that because many other companies are very swift on this.

Q: Do you think that Tata Steel's performance for the year will remain intact to the projections amid global uncertainties and trade war or there is any change in the bottom line and top line?
A: I can't give you specifics but things are worse then what we thought at the start of the year. Normally, the domestic market has been strong but trade issues have an impact on the international market particularly on the European business. But, the total Indian business is now 60-70% of our total revenues and are the most profitable part of the business. We were hoping for a better year for the Indian business at the beginning of the year. We were seeing some signs of slowdown but there was a hope that things will pick up after the elections are over. At that time, we thought it was more the uncertainty of the elections, which was slowing things down. But things haven't improved even after the elections are over and it had made us relook at what we projected for the year. The second factor is that while steel prices dropped the raw material prices didn't drop. Tata Steel has some advantage on iron ore but 75% of the coking coal is imported and its prices have been quite strong. This has been because the demand in China for steel continues to be strong, if you see the last 8 months, then the demand in China has gone up by almost 10%. This is despite the GDP growing at 6.50%, the steel consumption is growing at 1.5 times GDP while the steel consumption in India is growing at a slower rate than GDP. That is why, the raw material prices are strong, so, the spreads have got squeezed, which has impacted us in Europe and to a certain extent in India. Thus, the projections are worse then what we have thought in March. Hence we have said that we are relooking at our CapEx because we are waiting for deleverage. We are trying to see how do we deleverage in current market conditions? How do we look at our CapEx and face out it? How to squeeze more on our working capital and look on the portfolio that we have and how we unlock value from that? So, these are the actions that we are looking at.

Q: Let us know about the debt levels on Tata Steel and the levels to which it will be reduced in this financial year? Also, update us on the sales of the non-core assets and has mjunction reached the final stage of deal till now or not?
A: We had a plan in Europe but the JV didn't come through as the European Commission didn't clear it. And Thyssenkrupp had its challenges with which it is dealing with. However, currently, we are focusing on the ways to run our European business in a cash positive way. It is a challenge but that is something on which we are focused on. Currently, we are not looking at anything because I think that the management also gets distracted if you are constantly looking for buyers. It is also not the right time from that point of view and that's why we are looking forward to the ways to focus on the business. We have invested a fair amount over the years and how can we run a business in a cash positive or cash neutral way. I think that the whole management team is focused on that. This the most challenging year to take that as a target but we are still working on it.

When it comes to deleveraging, then we are chasing a billion dollars of deleveraging at the beginning of the year, obviously, that looks more and more challenging because of the fact the market conditions. So, we are still chasing deleveraging what is the amount that we will know as we go along during the year. As far as South East Asia is concerned, the MoU with Hesteel that we had did not go through because it didn't get approval that they needed. Later, we signed an MoU with Synergy Group for the Thailand business and that transactions are going on. They are doing the due diligence, the details are being discussed and hopefully, in the next few weeks, we will try to conclude. Apart from this, I would not like to comment on specific companies other than what we have talked about publicly but some people are interested in multiple parts of our portfolio. We evaluate all possibilities and when the time is right, we will talk about it. 

Q: But the 1 billion targets were announced by keeping Thyssenkrupp in the mind?
A: No, that 1 billion was after because we would have had almost 2.50 billion Euros of debt of Thyssenkrupp going away and this is beyond that.

Q: Do you think that you will achieve 50% of it or it will remain below those levels as well?
A: It depends. I hope and felt that H2 will be better than H1. let's see if H2 is better than H1 than we will keep chasing that 1 billion.

Q: What is your immediate outlook on near time steel prices? Is there any hope of revival?
A: Pre-festival there is a little bit of pick-up in the demand but it is too early to say that it is a permanent or more permanent than just a transition. Secondly, in the international market, everyone is waiting to see what happens in China after this week because, earlier, the future prices in the country went up. But currently China is closed for holidays and next week when they open, we want to see what is happening there. South-East Asia prices have been a bit weak largely because of Indian exporters including us because everyone is trying to export to South East Asia. But, I think, if the raw material price stays where they are - because the levels at which the iron ore and coal prices are - then I don't think that steel prices at these levels can be sustained. Thus, either the raw material prices will have to drop further and if they don't drop further then steel prices have to go up or else most of the steel companies across the world will struggle financially.

Q: Update us on the kind of impact that it, the subdued prices, will have on the margins?
A: If you see the steel prices today are almost $100-150 less than what it was last year this time. And, in the raw material case, the coking coal prices have dropped by $40in the last few weeks and iron ore prices are pretty much at the same levels at which they were last year this time. So, frankly, the spreads have got squeezed, if you look at spreads then internally it has got squeezed by at least $100. Now, how much of that you gain, and the steel companies are always trying to see how much other value you can bring back, what are the other efficiencies that you can drive, what are the other efficiencies that you can drive, what are the cost savings you can do beyond that. On the positive side, some of the other costs have come down like electrode and ferrous alloy prices have come down. So, there are other inputs which have come down.

Q: To which level it can balance the things?
A: There are efficiency measures that steel companies like us and everybody else will do. Then, you will look at everything that you buy because typically for a steel company 60-70% cost is of the purchase cost. So, you will try to renegotiate the contract and others. Firstly, we have been through the cycle many times and as a cyclical industry, there are a set of actions we start whenever it is a down cycle. So, it is not so that we haven't done it before but we have to keep doing better and better every time.

Q: Earlier, you have spoken that you have focused more on deleveraging instead of CapEx. So, what is the CapEx that you are talking about? Is it related to domestic CapEx that you have announced about Kalinganagar and you will stay for a certain period or hold it back?
A: Both, at the start of the year we said that we have a CapEx of around Rs12,000 crore and some time back we said that we are cutting it down to about Rs8,000 crore. Thus, in Europe as well as in India, we will look at how to optimize the CapEx. So, there are different ways, one to say that how do you prioritise, even in Kalinganagar. In Kalinganagar, we are prioritising on a cold rolling mill and the pallet plant because the cold rolling mill will add value and the pallet plants will help in the cost. So, you are focusing on reducing the cost and improving the value rather than improving the volumes straight away. So, the volume increase comes a bit after these and we are trying to see how do we prioritise the elements of the CapEx, which is multiple elements and how do we prioritise it. Secondly, in many cases, we can negotiate with suppliers to see that we can start work but the payments can be later. Thus, there are many ways in which you can face out the CapEx, so that is what we are doing and then we will look again at reprioritising all other CapEx beyond Kalinganagar to see what is necessary and adds to the bottom line and what can wait till next year on the cost basis like IT refreshing, changing of Laptops and computers and you can push it by another 6 months as nothing is going to change. Thus there are many levers that we look at and when we look at then normally give the team some goals and they come back and prioritise things and tell us this is how things can be done.

Q: What are the production targets of Bhushan Steel in FY21?
A: We have said that by the time, we exit the year we will be running at 5 million rates, which means in the last few months, we will be running at 400 thousand plus. I think that we are in that striking range and the challenges being faced include, the markets are bad, order load is not so great. So we are exporting quite a bit from both Bhushan Steel and Tata Steel. But, we are confident that we will be able to push the facilities to optimal capacity. I think we are comfortable and confident that operating at that 5 million rates is possible, there is no issue. We have brought a lot of the facilities, over the last few months. One of the best things about Bhushan is that we were always confident that we can move from 3 million to 5 million with hardly any CapEx, which we have been able to do. However, the ongoing problem is external to the plant, which is doing quite well and stable. The team has done a great job and we are comfortable there.

Q: Is there any way of hope or silver lining that you see in the foreign market amid domestic challenges? Do you have any market where your product is in demand like China?
A: As I have said demand in China is very strong. As a consequence, we sell in China but at least China doesn't export much. If you have a look at South East Asia today then the price setters are Indian exporters, not the Chinese exporters. Thus, China, because the demand has been strong, hasn't been a disrupter in the international market as much as we feared some time back. Secondly, Vietnam has been a strong market in South East Asia and I was reading an article saying Vietnam can be the number one choice for companies who are looking at alternate geography or country to set the facilities. India should have been the number one choice but I am seeing Vietnam, Cambodia, Thailand and Myanmar are on the list. With the lowering of taxes, there are hopes that we can attract more.

Q: The finance minister has said that our taxes are in line with South Asian countries or probably lower. So, do you think that things will come this way?
A: Most of the steel exported from India goes to South East Asia mainly to Vietnam. So, South East Asia has been a decent story for consumption for Tata Steel and others. Middle-East is impacted by the issues between Iran and Saudi Arabia, but otherwise, if oil prices are stable at this level or even go higher then Middle-East is also an interesting market. Europe has been bad and the US is slowing down. I think South America is also slowing down. Thus, there are very few pockets where consumption has been going strong. Turkey has its problems and has been exporting a lot. If you have a look, then South East Asia has been reasonably better off than the others. India is not bad, its worse then what we think but at 5-6% it is not good enough for us. But, in terms of positive growth India, China and South-East Asia, which is leading at present. But, the significance of steel consumption is not growing in any other country.

Q: Where do you find yourself in the renewal of mining leasing as the state government have come up with their regulations?
A: The government has been clarifying and in recent past (2-4 days ago) there was an amendment that shall have been placed at the place of may which means you have to extend it for public sector companies. So, there was an issue in Karnataka, where there was a difference between the state and the centre and NMDC. I think it has got clarified. Auctions are scheduled at happen at all merchant mines particularly in Odisha in 2020 and Tata Steel will also participate in those auctions. Not only Tata Steel but we also have Tata Long Products, Tata Metaliks and other companies that buy iron ore and they will also participate in these auctions. To me, it is going to be slightly tricky period because the ownership of several mines is going to shift and the government - centre and state - is doing a lot to ensure it goes smooth. The fact is that public sector companies like SAIL have been allowed to sell 25% of the iron ore at its mines because it has captive mines, which is positive. Some public sector has been allowed to sell fines that are positive otherwise we can't afford significant disruptions. Tata Steel's with its captive mines also buy 3-4 million tonnes of iron ore because of Bhushan Steel, Usha Martin all these have come in faster than our ability to increase our iron ore capacity. So, India being an iron ore-rich country the last thing that we should have is disruptions in iron ore supplies. It will be a pity if India has to import iron ore to take care of domestic needs.

Q: Any specific geography where you will focus?
A: Mainly in Odisha because our steel plants are located either in Odisha or Jharkhand. We will also participate in Jharkhand is something happens in this zone.

Q: How do you see Tata Steel in the mid and long term?
A: This is a 100-year-old company and any leadership team in Tata Steel always try to see, how, we can make sure that this company is there for another 100 years. So, we always look at keeping the country future-ready, which can be in size, scale, raw material security, culture, technology and many other aspects, which ensures that the company is ready for the future. So, we are working on the physical side of it, which is about size, scale and what we have said grow India business because structurally you become stronger if India is bigger, grow the mining business because we are already 30 million tonnes in mining and we want to go to about 40-50 million tonnes, to support the steel business. We are also looking at commercial mining as well. So, it is all about growing the existing business in scale and making it structurally stronger. The second part of it is how culturally we can be ready for the future in terms of being the more agile company, which is innovative, focused on technology, and R&D among others. That calls not just about spending money on infrastructure and facilities but also changing the mindsets of the people. A lot of things are going there. We are doing a lot of work on being more inclusive in terms of gender diversity, getting more differently able people working with us.

Q: Is there any scheme of consolidation as part of the bigger plan?
A: Simplification and consolidation, we have talked about the fact that we want to simplify our subsidiaries, as we have too many subsidiaries of which too many are listed ones. How do we work around that and have one robust story or a few companies, which are focused in some areas? Even the entire group is trying to simplify and it is a part of that story. How do you simplify and build scale, be more agile? So there are so many dimensions of change. while there is a lot of the past that we will try to preserve and shrink and there is a lot of future in which we are working to create.

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Q: Will you be interested in participating in strategic divestment plans of the government if there is any opportunity in metal or iron companies including SAIL?
A: Obviously, the opportunities are exciting but as I have said earlier that we want to find a better balance between deleveraging and growth. If we can deleverage and grow then it is best. So, if we have to choose between the two than the immediate focus is on trying to deleverage. It is not about growth without deleveraging or growth without worrying about debt. Before the market softened we said that we want to bring the debt to EBITDA below 3 and we were somewhere 3.3-3.4. Just now, the markets are not in our favour but the long term is how do we bring debt to EBITDA below 3 and have a strong balance sheet and how do we try to deleverage better in good times so that we can pick up assets steeper and not so good times. But, making such a change in an economy that is growing, when there are opportunities. If you see, last time this time or before Bhushan Steel we brought on the debt quite low and the net debt was about Rs65,000 crores and then the Bhushan Steel opportunity came and we had to take that as those opportunities don't come often and we know that it takes around 10 years to build a new steel plant or 5years. When it comes to SAIL, then in today's time, market and situation, we will think hard about it. Secondly, I would assume that the government will look at SAIL will not look at one company but as multiple plans, because SAIL in itself is a collection of very big and different plants. SO, I think, it is more the government's call that it makes more sense for SAIL to be divested plant by plant. In that case, we could be some plants where we can be interested in. Generally, we are quite comfortable for flat products because between Jamshedpur, Kalinganagar, and Bhushan Steel in Angul, we have the facilities right now to build capacities of 25-35 million tonnes, if our balance sheet affords it and the market demand is strong. So, now the focus is on organic growth will be more on long products.