Specifically on cost takeout. Historically, we have given disclosure for Indian operations. Likewise, if you look at Tata Steel Europe, we had indicated cost transformation programs in year FY2020, FY2021, and FY2024. The cumulative number is almost like £700 million plus. However, when we look at the implied cost, ex raw material, ex power & fuel, we don't see the stickiness of the cost savings. How to better understand or appreciate the stuff that you're doing?
Let's take Europe first. In Europe, the cost takeouts where there is also an offsetting factor. When the Ukraine War began, the gas prices changed very significantly. The inflation numbers were very high. The inflation impact on the conversion cost was very clearly reflected, which did not get compensated by any price increases in steel post 2022-23. In India, KPI improvement process is actually an anti-inflationary KPI improvement process. We are now also tracking absolute costs. Absolute cost takeouts have actually been supplemented on top of it to make it more accountable so that you can trace it from your financial statements. Naren added: when we look at improvement, we look at KPIs - even if you've improved your coke rate by 10-15 kilos, that improvement gets wiped out by the increased coal price. In Europe, CO2 costs used to be €14-15, went up to €80-90, and now it's down to about €70. Maybe we'll discuss to see how when we present it, we can separate out the improvements from the external factors.
If I look at our EBITDA for this year, on a consolidated level it is Rs. 25,000 crores. If I look at the last two years, each year, we have spoken about roughly Rs. 6,000-odd crores of cost savings. Should we think that if not for these cost savings our EBITDA would have been like Rs. 12,000 crores? Is this cost really translating one-on-one in P&L and cashflows? My last question is about Rs. 4,000 crores of saving in India. It translates to roughly Rs. 2,000 per ton of EBITDA. Does it reset India base case or worst case EBITDA per ton?
If you look at India, we have often said that in down cycle, we've been around 20-22% EBITDA margin, in medium cycle, we've typically been at 25-28% and in up cycle close to 38-40%. We are looking at the cost side, not linking it to the revenue side because the revenue will come. As TSK ramps up, our downstream facilities ramp up, our revenue per ton will increase even on a mid-cycle basis. In the cost side, we need to drive it on an individual basis. When we acquired Bhushan, we had to do a lot more maintenance work compared to the plan. Now we are bringing in more digital and analytics. Naren added: Maybe 8-10 years back, we used to look at $600 per ton as the all-weather steel price and Rs. 14,000 as the all-weather EBITDA per ton. Today, if we cross $500 per ton, we are happy. The 20-22% EBITDA margin and Rs. 14,000 EBITDA per ton is being delivered, though the steel price has been dropping.
If this asset comes up again on the block, would Tata Steel be interested in acquiring it?
We would rather not answer that question because it is related to a different company, and it's not fair to answer.
Given that today, there's a continuous pressure on Chinese steel prices, our calculations are suggesting domestic prices are at Rs. 2,000-3,000 premium. So, are we sensing a peak in steel prices and some pressure going forward?
Obviously, this gap is there now because Chinese prices again dropped. It's been fluctuating in a $50 range. But imports are still not coming in a big way yet because people are concerned about the dollar. You have a monsoon season coming and do you want to import cargo coming in during monsoons. I don't see imports flooding in just yet. Of course, when we went to the government with a safeguard request, the original request from the Indian Steel Association was 25%, the government said 12% because it wanted to keep all other stakeholders' interest in mind. If we, again, see a flood of Chinese imports, we will certainly go back to the government and see what can be done.
I wanted to get a sense of how prices have moved currently vs. the last quarter, both in Europe and in India?
In India, we are guiding that prices this quarter will be about Rs. 3,000 per ton higher than what it was last quarter. In Europe, it's about €20 - 30 per ton higher than last quarter.
Given we have long-term contracts, how should we see it? Prices in the spot market have gone about $150 per ton over the last 2-3 months. Would you be seeing the full impact 2-3 quarters down the line?
We have our annual contracts, which are normally negotiated in November-December. They are typically the packaging and automotive contracts. These typically are much higher than the spot prices. The spot price impact maybe about 30-40% of the volume in Netherlands and a similar level, maybe slightly higher in UK. If you look at steel prices, it has fluctuated in a $50 per ton range. What has helped is actually the coking coal price is going down, which has helped spreads more than steel price itself moving up too much.
My second question is a medium-term question. What is your view on Jamshedpur given the legacy cost issues and a bit of operational disadvantage we have given smaller blast furnaces there? Is there a medium-term plan here?
We do have some legacy costs in Jamshedpur, but a lot of work is going on to address that. If you distribute some of the costs which we incur in Jamshedpur over the other side, the gap is not as much as it may seem because, for instance, all the R&D facilities are located in Jamshedpur. Procurement facilities are largely located in Jamshedpur. The advantage in Kalinganagar is you have bigger facilities, two blast furnaces, making 8 MTPA, one steel melt shop making 8 MTPA. When I look at a cost on HRC basis, the gap is now reducing between Jamshedpur and the other sites. We also have almost 1,000 people retiring from Tata Steel amongst the unionised workers in Jamshedpur every year, that also helps us bring down the legacy cost.
We have taken an approval of infusing another $2.5 billion into Europe. Any specific reason for the same given we already are on a route where we have funding from the government in UK?
This is similar to what we did last year. It is not new investment. It is rebalancing the debt between overseas debt and India debt. Effectively, that makes a lot of sense because, a) to reduce currency fluctuation; b) to get post tax cost down. Only a small sliver of that investment will be the investment that is going on in the UK, which is relating to the EAF projects which is 40% shared by the government and 60% is on our account. Fundamentally, the principle is to onshore more of the debt.
My second question is on the cost takeout. In the prior call, we had indicated for Tata Steel Netherlands around €500 million. In this presentation, we have given a number of Rs. 4,500 crores. Is it the same number? Or is it a top up?
It is the same number.
Specifically for UK, we have given a number of around Rs. 3,000 crores. This effectively implies 36% of the cost base ex raw material. What are the underlying variables that we are looking at? Is this an exit rate that you are looking for FY2026?
It is indeed the exit rate, but it is the total cost takeout. We have a total fixed cost of £995 million when we were running on an integrated basis. We reduced it to £760 million this year, and our intent is to further reduce the cost to about £540 million. This is all fixed cost - maintenance, hire and leasing, some part of it is the employment, and then there are other operating charges. These are the ones which will be going down significantly compared to FY2024. This is the year end number that I'm talking about.
Tata Steel has been around for decades. Now these anti-inflationary cost takeouts that you are talking about, which are different from the earlier ones. What has led you to now look at these cost savings that the company had not seen before? What is unique to what Tata Steel is doing, what others might not be able to replicate? And why now? Why couldn't you do it earlier?
In our kind of business, which is cyclical, you always have to be the last man standing. Cost takeout will go on forever. When you compare with the Chinese, the challenge is that the Chinese are able to sell steel at 3-4% EBITDA margin or negative EBITDA margin and continue to grow. The India business because of our backward integration, we continue to be one of the lowest cost producers of steel in the world. In Europe, the cost structures are higher. Prices are also higher. In UK, when we closed the blast furnace and moved to an EAF, we have said that structurally, our cost improves by at least £150 per ton. Today, technology allows us to see costs in far more detail than before. The analytics that we are doing, the AI that we have in our systems - we have moved from preventive to predictive to prescriptive maintenance. Koushik added: the cost takeout in Tata Steel India started in 1995 and never stopped. We are upping the game to make it more structural and make it larger in size.
I get the point. We are trying to figure out if everybody is trying to be the last man standing, challenge is one year later everybody looks at cost, but EBITDA doesn't change. Isn't that the fundamental reality in commodity business?
I want to add a little bit to that. One is the cost side. The other side is on revenue. That's why the product mix is important. We look at the high-end markets, the approval-based markets, we look at our branded and distribution business, we look at downstream businesses. There is a lever on the revenue side to supplement the lever on the cost side. Both are important.
Last question, putting you on the spot, let's say, one year down the line, everything remains the same. Prices, raw material prices, coal, power. Should we be looking at €100 per ton EBITDA for Netherlands given cost takeout?
€70-80 per ton is what we are seeing in Netherlands, we will move towards. Eventually, yes, we should be aiming towards €100 per ton but €70-80 per ton is what we have basically said we should be chasing. In UK, all things remaining same, just through the cost takeouts etc. we should be EBITDA neutral or EBITDA positive, which if the steel prices have not dropped so much in the last few quarters, we would have already achieved.
Could you please tell us the volume guidance for India and consolidated for FY2026?
The volume guidance is roughly 1.5 million tons of additional deliveries. Most of it is in India because UK will be flat, Netherlands will be slightly higher. In India, basically, we'll have about 2 million tons extra out of Kalinganagar, but we have the H blast furnace reline due in Jamshedpur. This year, we had G blast furnace relining. So, net-net, the volume increase guidance is 1.5 million tons.
Are there any additional volumes from Ludhiana?
Not yet. We are hoping to commission the plant by the end of this financial year, but nothing material. You will see the volume impact next year. You will see the complete Kalinganagar volume impact next year. This year, we will finish Kalinganagar at close to 7 million tons; 6.8 million tons of steel and 7.5 million tons of hot metal. By next year, we will have a ramp-up because the steel melt shop will be complete. The third caster and everything else will come by September.
In terms of cost, our Jamshedpur and India operation is one of the most efficient operations. Just wanted to understand the Rs. 4,000 crores that we have targeted for the year. Is there any tangible scope to reduce the cost further? What are the broad buckets?
When we say Rs. 4,000 crores, there is a lot which we are doing through, for instance, optimisation of our contracts because we have multiple sites now. Each site used to have its own contracting for maintenance, services, etc. We are doing a lot of work on vendor development. Jamshedpur will continue to benefit from the reduction in wage bill because most of the older workers are in Jamshedpur. These are conversion costs. They are not linked to raw materials. Koushik added: This Rs. 4,000 crores is based on multiple areas - stores, repairs, maintenance, fixed cost. We have taken Rs. 533 odd crores of exceptional charge - last quarter we had about 1,100 people leaving the company. The model in how we procure has changed. It is now across all sites - Kalinganagar, Meramandali, Jamshedpur and across mines and collieries.
My first question is on infusion of $2.5 billion. Should we think that this is the final number given Netherlands will hopefully become self-sufficient from a cashflow point of view? From a 3-5 year perspective, is this final support from India balance sheet to European operations?
On the $2.5 billion, the Netherlands will be very soon be debt-free on a net debt basis because they are now generating enough cashflows. They had always historically been debt-free. As far as UK is concerned, we have debt, which we want to take out through this infusion. When UK becomes, on an underlying basis, self-sustaining, hopefully, we don't have to give any further debt. As far as capex is concerned, we're committed to about £750 million. We have overseas foreign currency bonds, which is in Singapore, which will also have to be repaid. Some of it is next year, and then in 2028, it finishes everything. What we are working towards is underlying cashflows of overseas businesses not requiring any funding support. That's our target.
Will this $2.5 billion be incremental investment from India or some of it is already there and in the form of debt or something and will be converted to equity?
It will be financed basically. It is not an equity investment, it's rebalancing of debt. We are not putting new money in for new investments or new assets or even for any other purposes, it's essentially putting in money to take that debt out and putting it under the India balance sheet.
There are questions regarding the impact of recent tariffs in China and the US on steel markets overall. Additionally, whether we are seeing benefits from the safeguard duty. Are these benefits fully reflected in the guidance provided for the next quarter, or is there more to anticipate?
The guidance that I gave is based on things as they stand today on the safeguard duty, which is already there in India and what we've experienced so far in this quarter and what we think we'll experience in the next six weeks. We are a bit concerned about the 10 million tons of exports, which continues out of China in March and April that happened and we are expecting that, that number should come down. If the US and China reach a deal on tariffs, we have a better chance of that number coming down. As far as US tariffs are concerned, UK-US understanding will help us. We sell about 70,000-80,000 tons of steel from UK to the US. We sell about 700,000 tons of steel from Netherlands to the US. That will depend on the EU-US trade deal whenever that happens. Regarding the medium to long-term impact in the US, we are seeing that the EU is increasingly investing domestically to build industry, defence, and infrastructure, which is more positive for the steel industry in the medium to long-term.
On the individual house builder segment, which has seen a lot of traction. Can you give us some sense of the industry dynamics here and Tata Tiscon's positioning?
Tata Tiscon has just celebrated 25 years since its launch. Today, it's a 2,00,000 tons per month business. It started as a 6,000 tons per year business. Generally, the same steel sold to a large construction company is about Rs. 5,000-6,000 per ton less. We have a network of about 80-90 distributors, covering all the districts in India. We have about 5,000-6,000 dealers. We are doing about Rs. 3,500 crores of GMV, 90% of it is Tata Tiscon. We are still only at 14% market share in the retail business. Once the Ludhiana plant comes online, we'll get another 1 million tons, all of which will be sold as Tata Tiscon. It's a Rs.10,000 crore brand and growing at 20%.
The question is on long products versus flat products, focusing on margins and realisations. How do the broader dynamics differ between long products and flat products?
It goes through cycles. Traditionally, flat products tend to fetch higher prices, and you have segments like automotive and oil and gas. Bigger steel companies tend to gravitate towards flat products. But flat products is higher fixed cost business. The second big shift in flat products globally is that when China used to export a lot of steel 10-15 years ago, it was mainly long products. Today, it is all flat products because the Chinese steel industry has switched from longs to flats, and flat products travel better than long. Currently, long product prices are higher in India than flat product prices on a commercial grade basis because most of the 100 million tons of steel China is exporting are flat products. From a return on invested capital point of view, long products are better because you can set up a long product plant for less money.
Do we see India risking or becoming an overcapacity steel market in the next 5-6 years given the expansion plans which everybody has announced?
Honestly, I don't think so because it's not easy to build steel plants in India. It takes time, assuming you have land. If you are going to start a greenfield site, it takes even longer time. India will never be able to build capacity as fast as China did. At its peak, China was building 50 million tons of capacity per year. India does not have the capacity to build because our processes take much longer, the approval processes, acquiring land, the public hearing, everything takes much longer. I do believe that we will have a better balance. India will never be a big threat in international markets as a big exporter like China because whatever capacity we build in India will be just about enough for India.
What is our guidance for coking coal and iron ore consumption for 1QFY26?
For coking coal, the guidance is that it will be about $10 per ton lower on a consumption basis, though the coking coal prices have gone up in the last few weeks but on a consumption basis, will be $10 per ton better, both in Europe and India. Iron ore is relevant only for Europe, specifically for Netherlands, because we've shut the blast furnaces in the UK. Iron ore is expected to be about $10 per ton higher in Netherlands consumption.
There are a bunch of questions on the developments around the BPSL judgment. Is the Tata Steel Bhushan resolution plan at risk of the same risks? What are the differences, and do we run the same risks?
There is no litigation on this matter as far as Tata Steel Bhushan is concerned. We've gone through two rounds. First, when the acquisition, we've done this as guided by the CoC within the timeline of the IBC. And subsequently, we have also gone through the full process of merging the business within Tata Steel. So there is nothing on a similar basis.
What are our deleveraging targets? Is there a plan to deleverage for the next year?
We've always said that our target remains to continue deleveraging while investing in growth projects. In September 2024, at the peak of the downturn, we were at about Rs. 88,000 crores consolidated net debt. Now, we are at about Rs. 82,570 crores. We've reduced more than Rs. 6,000 crores of debt across entities and geographies in the last six months. We will continue this pathway into FY2026.
There is a question on why our interest costs have gone up. What is the direction of our interest costs?
The net finance cost for FY2024 was ~Rs. 6,700 crores, and the net finance cost for FY2025 is ~Rs. 6,300 crores. So, I didn't see any increase in interest costs. But there is one point that when we are doing more and more onshoring, you would find that the headline cost increasing, but the effective post-tax cost going down.
I just wanted to get a sense now on expansion plans, I believe FY2026 capex guided is Rs. 15,000 crores, which I understand doesn't include any planned new expansion projects in India. Where do we stand on the NINL and KPO3 and such expansions, particularly in the context of 35-40 MTPA capacity target we had given for FY2030?
The capex here is largely focused on raw materials and on Kalinganagar completion. It includes the Ludhiana plant, which is ~0.8 MTPA, but we hope to push it to 1 MTPA. We have the 0.5 MTPA Combi mill, which will convert some of the billets that we are making in the erstwhile Usha Martin facility into special bars. In terms of major expansion projects, the next one, which will go to our Board is the Neelachal one. We have already gone through the public hearing. We've already done the public hearing and have applied for an environment clearance, to go up to 9.5 MTPA for Neelachal. We are then working on the Kalinganagar next phase as well as Bhushan expansion from 5 MTPA to 6.5 MTPA. Neelachal is the most ready - during this year, we will go to the Board.
Is it fair to say that it looks more like 30 MTPA by FY2030 rather than the earlier 35-40 MTPA that we were expecting?
What we expect to have by FY2030 is all these projects at different stages. Hopefully, we start the Neelachal project now. At least the first phase will finish, and we can start the other two, which will be at different degrees of finishing in FY2030-31. Yes, we will not have completed capacity by FY30. Koushik added: when we will announce projects now, we will be ready to start construction. There is a different phasing that we have done. The preparatory work post-announcement has been changed to pre-announcement and then straight away into the execution stage.
First question is on the Europe operations. Is it possible to share and explain what is the impact of reduction in carbon allowances in FY2026? What would be the likely cost impact of that?
As far as UK is concerned, it's now zero. There is no impact of CO2 in UK. There is a certain amount of free allowances UK will get and that is good enough for the downstream entities to compensate for it. From FY2025-26, there will be no impact of CO2 as far as UK is concerned till the start of FY2027-28, when the next phase of the EAF starts. As far as Netherlands is concerned, there is a deficit that happened until last year. It will gradually converge, but there is an increased cost on account of carbon, and that is happening because of the fact that the allowances are reducing, and there is also a CO2 levy that has been coming in as far as the Netherlands is concerned. So, it is close to about €80 million a year. On a longer term or a medium term, when the CBAM comes, it will neutralise the cost because arithmetically, the cost of the steel prices will reflect CBAM, which will cover up for the cost of the carbon.
I have one question on the entire cost savings topic. So how is it expected to phase in FY2026? Is it more of a gradual thing or back-ended? Given the Rs. 4,000 crore number for India, keeping the spreads aside, can we expect Rs. 1,500-2,000 increase in the EBITDA on a per ton basis?
As far as Netherlands is concerned, that project has just kicked off. One of the important parts of that is also the productivity gains. In Netherlands, while some part has been realised and many of the non-productivity work streams are moving forward, it is more a second quarter plus onwards, but it is not so secular because it is something that will happen more around the 3Q-4Q. As far as India is concerned, we started this project last year. We've taken out Rs. 1,800 crores of cost plus Rs. 900 crores on coal optimisation. That is a lot more secular in India, but it is more from June onwards. After June, we should see the results in the financial statements. Whether you can see the improvement on a per ton basis - the answer is yes, ceteris paribus, everything else remains the same.