‘Private investments not happening in capital intensive sectors’

Unlike in FMCG, private investments are yet to materialise in capital intensive sectors such as steel and power, according to TV Narendran, Managing Director, Tata Steel Ltd. However, mega investments are happening via government projects, he added.

Private investments depend on the opportunities available and sectors like steel have been going through “challenging times” for the last two-three years, Narendran told BusinessLine in an interview on the sidelines of a recent CII event.

“Some investments are not visible because they are mega investments,” he said. In fact, the steel market has picked up in India primarily spurred by the government’s infra spends.

So far, steel demand has risen on the back of increased construction activities, laying of power transmission lines and investment by Railways. Mining activities and improvement in the automobile sector have also happened.

However, it was the construction sector — which accounts for 60 per cent of steel demand — that continues to cause concern. While commercial real estate has done well, a slowdown in the residential segment has come as a cropper.

In fact, Narendran pointed out, while demand is expected witness a 4-5 per cent growth, it is still “below par”.

Typically, steel demand mirrors the GDP growth rate and, in developed countries, it is higher than the GDP. For instance, when China was growing at 10 per cent, the steel sector grew 16 per cent.

“In India, we have been forecasting a 4-5 per cent growth in steel demand, which to me is below par,” he said. “But that is partly because India has not seen industrial-led growth. Industrial-led growth is more steel-intensive.”

Narendran further said Tata Steel will, in two-three months, finalise plans for the second phase of expansion at its Kalinganagar unit in Odisha. Phase II will see the addition of 5 million tonnes per annum to the plant’s existing capacity of 3 million tonnes.

The company had spent ₹20,000-25,000 crore on the first phase, but the second phase will cost less because the enabling infrastructure has already been built. “So, to that extent, the capex per million tonnes will be less,” the MD said.

The transition to GST, Narendran said, has helped Tata Steel drive greater efficiencies in supply chain. Traditionally, the company set up stock points and billing points in different States because of taxation issues. But now, GST allows the company a scope of rationalisation with more efficient stock points, he said. This means, the time taken to reach customers is lesser. It will also lead to cost savings for the steel major.

“I don’t want to quantify that now. But we will get a better sense in three-four months. Certainly, Tata Steel is benefiting from it,” he added.

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