Mumbai, Aug. 14: Tata Steel will continue to face challenging conditions over the next 18-24 months with over-capacity in China and demand shortfall in Europe being the key concerns.
The steel giant, however, hopes to withstand these conditions through management initiatives aimed at strengthening its core operations, which include investment in select facilities, product rationalisation and right-sizing of manufacturing assets.
This was disclosed by chairman Cyrus P. Mistry at the company’s 106th annual general meeting here today.
The cautious note comes only a day after Tata Steel delivered a positive surprise by posting better-than-expected numbers for the first quarter ended June. Net profit on a consolidated basis rose to Rs 1,139 crore from Rs 597.88 crore in the year-ago period.
In his first address to shareholders, Mistry said the company faced challenges such as volatile raw material prices apart from demand weakness in key markets. In the last fiscal as well, Tata Steel felt the repercussions of the global economic crisis and over-capacity that affected the sector. Both these factors had resulted in demand weakness and prices staying soft.
According to him, while the Eurozone steel demand contracted 9.3 per cent, India also saw tough conditions with major consumers such as auto and infrastructure feeling the impact of the slowdown.
During the last year, the company added nearly 3 million tonnes (mt) through brownfield expansion at its Jamshedpur facility that took its total capacity to 9.7mt. He, however, pointed out that in a challenging year, Tata Steel was successful in maintaining sales volume from the auto segment, which is its key customer. This apart, it also increased deliveries to large customer accounts such as tube makers and railways.
The Tata Steel chief said the company was focusing on prioritising its capital expenditure to maximise value addition. As part of this plan, it will launch around 30 products this year, up from 17 last year. Here, various measures undertaken to improve efficiency, including product rationalisation and restructuring, have already resulted in savings of £ 200 million.
On the large number of subsidiaries, Mistry said Tata Steel might look at rationalising their number. This came after a shareholder pointed out that the company has around 315 subsidiaries and that Tata Steel should follow the example of a couple of other companies in the Tata group who were bringing down the number of subsidiaries through mergers.