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Tuesday, Sep 10, 2002

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Tata Steel: Future plans on course

Indrani Dutta

TATA Iron and Steel Company (Tata Steel), Asia's first and the country's largest integrated private sector steel plant, is aiming to become a EVA positive company ahead of the three year time frame that it had set for itself.

Stating this, Mr B. Muthuraman, Tata Steel, Managing Director, told Business Line here that there has been good progress on the EVA front. "An awareness has been created on this issue, costs were down and Tata Steel was now one of the lowest cost producers of hot rolled coils.''

Company sources said that with costs being brought down Tata Steel has one of the lowest operating costs producing hot rolled coils at between $150 to $160 a tonne as against the Rs 154 per tonne cost of production of Pohang Steel of Korea.

It may be mentioned here that hot rolled products such as plates, sheets and coils are widely traded all over the world because of their varied applications. Hence they are used as the industry benchmark.

Mr Muthuraman said the company had launched several initiatives to reduce costs right from the mining of coal to procurement of raw materials. Moreover, outsourcing of those activities that do not form the core of Tata Steel's business was also progressing well. A.T. Kearney had been appointed consultants for helping out the company with its efforts in this direction.

Beginning from this year, Tata Steel, one of India's most respected companies, embarked on its journey to become an EVA positive company. EVA, or economic value addition (a relatively new concept in the corporate world), is the difference between the return on net assets and the weighted average cost of capital multiplied by the invested capital. Mr Muthuraman said that there were only a handful of steel companies in the world who have a positive EVA and as of now Tata Steel was not among them.

To become an EVA positive company Tata Steel would "mobilise all its resources and efforts through value-based management that will help the company earn better returns than the cost of capital. Company sources said that at the current level of investment, Tata Steel requires a PBT of Rs 800 to Rs 1,000 crore to become EVA positive. Tata Steel expects to complete the journey in about three years time. With the progress made in this direction in the last few months it looks possible to achieve it ahead of the target.

Alongside its journey towards transforming itself from an EVA negative to a EVA positive status, Tata Steel is laying special emphasis on another area — managing knowledge, according to Mr Muthuraman.

Knowledge, is being regarded in the 21st century as the fourth factor of production (the three conventional ones being land, labour and capital).

The central theme of knowledge management is to leverage knowledge and reuse knowledge resources that already exist in a company so that people seek out best practices rather than re-invent the wheel.

Referring to the current year, the Tata Steel Managing Director said that production and market reports were good and hot metal production would be more than the targeted amount. The company had improved its product mix and would be selling more of branded products, he added.

To a question on future growth areas, he said that entry into some non-steel areas was still being probed. On acquisitions he said that the company as part of its EVA positive enterprise would look out for acquisitions as a means to enhance shareholder value.

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