New Delhi, July 18: Next two years are going to be challenging for Tata Steel but it will emerge stronger after a host of initiatives including "right-sizing of manufacturing assets", the company's chairman Cyrus Mistry has said. "In the face of volatile raw material prices and systemic weakness in demand in key markets, the next 18-24 months will be challenging for Tata Steel.
"However, I believe, we will emerge on a stronger footing, through a series of management initiatives targeted at strengthening our core operations including investment in select facilities, product rationalisations and right-sizing of manufacturing assets," Mistry said in his first annual letter to company's shareholders as chairman. Mistry, who took over the baton to lead Tata Sons from Ratan Tata in December, did not elaborate on 'right-sizing the assets'.
His letter is part of the company's annual report, which has been made public today. The market has been speculating for quite some time that Tata Steel may sell some of its assets, as it had done last fiscal, to repay part of its Rs 55,421 crore debt and fund its new plant which is coming up in Odisha. In 2012-13, the company had sold its stake in group firm Titan Industries, its entire holding in subsidiary Sila Eastern and in Wuxi Ltd (China). Industry insiders maintain that Tata Steel may offload its stake in various group firms, including 5.6 per cent stake in Tata Motors.
The company had also taken a $1.6 billion write down during the last financial year on its books, which was primarily related to acquisition of Corus in 2007. According to Mistry, world's steel production in 2012 grew at its lowest rate, at roughly 0.7 per cent, since the global recession of 2008 and the outlook remains depressed.
"The overhang of the economic crisis and significant overcapacity in regions like Europe and China continues to stress global capacity utilisation and the demand supply balance," he said, adding that present slowdown in Indian economy is "unlikely to turnaround quickly". Amid this, the company is gearing up to commission the new steel plant in Odisha's Kalinganagar -- first steel plant of the company in India outside Jamshedpur, Mistry said. First phase of the project, having 3 million tonnes per annum capacity, is scheduled for commissioning by September- October, 2014. "All efforts are concentrated on commissioning the first phase of the project as per schedule, which when ready, will help strengthen the product portfolio in India and help rebalance steel-making capacities across the Group," he said, adding that its facilities will enhance Tata Steel's market positioning and returns for its shareholders.
Currently, Tata Steel's European unit accounts for two-thirds of its total production at about 24 million tonnes. Last year, it had added a new 3 MTPA capacity at the Jamshedpur plant.