How Tata Steel's market cap grew 256 percent in one year
The turnaround at Tata Steel has primarily been on account of higher steel prices but the company has also taken several initiatives that should help the company go the additional mile. Subscribe to Forbes India for early access to our latest cover story
TV Narendran, managing director, Tata Steel
Image: Neha Mithbawker for Forbes IndiaÂ
As the pandemic unfolded in Europe, TV Narendran had access to an early warning none of his Indian counterparts had. Tata Steel Europe had seen sales collapse as Covid-19 infections spread and lockdowns were announced. What if it happened here, he was thinking.
A similar period of no sales in India had the potential to sink Tata Steel’s highly leveraged balance sheet. And so the team at Tata Steel got to work. A ‘virtual cash war room’ was set up by Koushik Chatterjee, the man responsible for the company finances. Every business decision was scrutinised. And while Chatterjee had to go out and raise funds—gross debt rose from Rs 104,000 crore to Rs 118,000 crore in the first quarter of FY21—the strategy paid off. As sales rebounded in June 2020, the company ended up with a free cash flow of Rs 1,000 crore in that lockdown-marred quarter.
The turnaround at Tata Steel in the last year has been primarily on account of higher steel prices but the company has also taken several initiatives that should go the additional mile. Its fortunes are as much dependent on what happens in China as what happens in the rapidly consolidating Indian steel market.
The improved operational metrics have also been rewarded by investors. While the benchmark NIFTY Metal index was up by 151 percent in 2020, Tata Steel’s market capitalisation has moved up by 256 percent to Rs 141,000 crore, making it India’s second most valuable steel company. The average return on equity has improved from 4 percent over the last decade to 11 percent in the financial year ended March 2021.
