Tata Steel plans to spend around ₹1,000 crore to increase Neelanchal Ispat Nigam’s capacity to 5 million tonnes per year from 1.5 mtpa even while making all efforts to restart production.
TV Narendran, Managing Director, Tata Steel said the team has taken over the factory, which was acquired on July 4, and work is in full swing to restart production.
Restarting production after acquisition
“We hope to start blast furnaces in three months and other facilities in the following months. The biggest problem is with the coke oven, which should not be turned off without precautions. Unfortunately, it was done two years ago, so it will take at least six months for us to bring it back to life,” he added.
The mine associated with Neelanchal is already operational and raw materials have started to be transferred to the factory. Tata Steel plans to sell pig iron from Neelanchal in October and reach a steel production capacity of one lakh tonnes per month in March, he said.
Tata Steel will need around ₹1,000 crore to revive Neelanchal and will spend around ₹500 crore in the first year, said Narendran.
Tata Steel has acquired Neelanchal Ispat at Kalinganagar in Odisha for ₹12,100 crore from MMTC, NMDC, BHEL, MECON and two Odisha PSUs, OMC and IPICOL.
It has an integrated steel plant with a capacity of 1.1 mtpa at Kalinganagar, Odisha. The company suffered heavy losses and the factory closed on March 30, 2020.
Net debt to EBITDA ratio
Despite spending on acquisitions and expansion, Tata Steel expects to keep its net debt to EBITDA ratio below its target of 2.
“We will be able to maintain our target of reducing debt by $1 billion this year even while spending growth capital. We believe, starting this quarter, we’re going to be putting out a lot of working capital. Currently, a lot of money is stuck in working capital,” said Narendran.
Lower raw material prices have helped most steel companies reduce working capital although weak demand remains a concern.
“Even right now, our net debt-to-EBITDA is in a very comfortable position. We wanted under two but today, we are under one,” he said.
The ratio of net debt to EBITDA is a ratio that shows how many years it would take a company to repay its debts if net debt and EBITDA were held constant.