Expecting demand from govt infra projects, Tata Steel rejigs Kalinganagar plant expansion

Tata Steel plans to enhance production capacity at its Kalinganagar plant in Odisha to 8 million tonnes per annum, from three mtpa, in anticipation of incremental demand from the Centre’s ambitious infrastructure spend of ₹4 lakh crore.

The company had earlier planned to double its capacity in Odisha to 6 mtpa by adding three million tonnes in the second phase. If implemented in a time-bound manner, the decision to add an extra 2 mtpa capacity in Odisha should bring down the overall cost of the much-delayed project.

TV Narendran, Managing Director, Tata Steel, told BusinessLine that having ramped up the capacity at Kalinganagar, the company reviewed the project and decided to go in for five mtpa instead of three mtpa by putting in a bigger blast furnace and retaining the same steel melting shop and hot strip mill as it will more capital efficient. The company has already received environment clearance for the project and the board will take a call in a month or two, he added.

Without commenting on the proposed investment, he said the company has already made a substantial investment in Kalinganagar and the second phase will not cost as much as the first.

As per the industry standard, a greenfield project of 1 mtpa of steel capacity calls for an investment of $1 billion (about ₹6,400 crore). However, brownfield projects costs much less.

Despite their huge debt, rising bad loans and uncertainty over demand, steel companies have announced capacity addition to protect their market share in case the anticipated demand from infrastructure projects materialises, as envisaged by the government.

Last month, JSW Steel said it would spend ₹15,000 crore at its Dolvi plant in Maharahstra to double capacity from 5 mtpa to 10 mtpa by 2020. Tata Steel itself is adding one mtpa to its 10 mtpa Jamshedpur plant through brownfield expansion.

Asked whether banks are willing to lend to the company given the concern over bad loans in the sector, Narendran said that the high debt and other matrix of the company may not be among the best, but banks definitely have comfort with the Tata Group as it is still a marquee customer and has never defaulted on repayment.

“The question is whether we want to add more debt in our books. We are weighing various options to fund the project,” he said.

Last year, the company raised ₹8,000-10,000 crore by selling equity investments in group companies and has almost exhausted that option now.

Tata Steel has a debt of ₹85,000 crore and registered an Ebitda of about ₹17,000 crore last fiscal.

“If the steel prices help we would like to reduce our debt faster and move on, but it was beyond steel companies’ control and it was a perfect storm of sorts. We had issues in Europe, problems in commissioning Kalinganagar, we had our mines closed and steel prices dropped. I do not thing there was anything more to add to the list of things that went wrong,” he said.

“Closure of mines and steel prices dropping to decade-low levels were some of the challenges we faced, The company has come out of all these problems and is in a better position today,” he said.

The Kalinganagar plant is currently producing at 2-2.3 lakh tonnes and it will be fully ramped up when it reaches the production level of 2.5 lakh tonnes.

“The production at Kalinganagar is not constrained by our ability to produce but by the logistics, like sourcing raw material, getting the ferro-chrome and enabling railway line and roads in place,” he said.

Commercial production at the new Tata Steel plant in Odisha started last May and most companies look to ramp up in 18 months, said Narendran.

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