Mumbai: Tata Steel Ltd plans to “eventually” scale up the nameplate capacity at its newly-acquired Tata Steel BSL (BSL), formerly Bhushan Steel Ltd, to 8.3 million tonnes (mtpa) from 5.6 mtpa.
Tata Steel plans capacity expansion at Bhushan Steel plant
The plan was laid out by Rajeev Singhal, the new managing director of Tata Steel BSL, in an article published in the July-September edition of the Tata Review, an internal magazine of the Tata group.
Tata Steel had on 18 May acquired Bhushan Steel in a ₹35,300 crore deal under the Insolvency and Bankruptcy Code. At the time, Bhushan Steel was operating at 3.5mtpa, far below its installed capacity.
Tata Steel executives said later that said synergies between the two companies have commenced, with slabs from Bhushan Steel’s factory sent to Tata Steel, while the former is gaining from coal procurement and product shipping lines of Tata Steel.
A Tata Steel spokesperson did not offer a timeline for the capacity expansion.
Singhal said the aim is to make the Bhushan Steel plant run at full capacity within two years. “Our immediate focus area is to stabilize operations and realize the full potential of the company,” he said, according to the magazine.
“The aspiration is to reach an EBITDA margin of 25% on purchased raw material basis and be the benchmark,” he said. Tata Steel, excluding Bhushan Steel, had an Ebitda margin of 31% in the April-June quarter.
Ebitda is short for earnings before interest, taxes, depreciation, and amortization.
“Tata Steel’s plan is to eventually converge the EBITDA per tonne metric of Bhushan Steel with its own plant in Kalinganagar,” said a metals analyst. He did not wish to be named as Tata has yet to officially announce the plans.
“Tata Steel has several captive iron ore mines in and around Jamshedpur and Kalinganagar, and with a small amount of capital expenditure, this can also be made available to the Bhushan Steel plant to ramp up capacity,” said the analyst. “Once they get permission to increase production from their captive iron ore mines, these reserves can be used for Bhushan as well.”
Tata Steel, which trails JSW Steel, has been aggressive in its plans to become the largest private sector steel producer in India. The company has already begun expansion work at the Kalinganagar plant in Odisha from 5 to 8mtpa. It earlier said the capacity at Kalinganagar would be eventually ramped up to 16mtpa.
In the same article, Koushik Chatterjee, Tata Steel’s executive director and chief financial officer said: “I won’t call this a race (to the top). The primary focus is running your own course. It is important to be value-driven, rather than just volume-driven…(But) we will certainly be aggressive in the market place and in volume growth.”
The analyst said “the problem that the erstwhile promoters of Bhushan Steel faced was that they went aggressive on expansion at the wrong time, as a result of which working capital dried up. Eventually, so much of the earnings went into servicing debt that they could not take advantage of higher steel prices. If you don’t have adequate working capital, then you can’t fund the next production cycle, especially in a capital-intensive business like steelmaking.”
The infusion of working capital, which the Tata Steel will bring, will be enough to revive Bhushan Steel, he added.