Tata Steel to Restructure India business to Reduce Costs and Increase Productivity
23 February 2016
India's oldest steelmaker Tata SteelBSE 0.69 % is looking to restructure its domestic business to reduce costs and increase productivity as poor demand and heightened competition from imports have shrunk profits, according to several people familiar with the matter.
Restructuring at Tata Steel will take place across all business functions such as human resources, production, transportation, marketing and so on. The company is in touch with all big consultants in India to roll out several cost-cutting and revenue enhancement projects.
"There's definite restructuring about to take place in the company, and in the white collar segment. The 'Big Four' have been asked to bid for multiple projects where each one will have a hand in driving the cost cutting initiative," said aperson on the condition of anonymity.
The 'Big Four' firms are EY, KPMG, PwC and Deloitte. However, global consultancies such as BCG and McKinsey are also likely to be part of this exercise.
A detailed questionnaire sent to Tata Steel spokesperson did not elicit a response till the time of going to press.
Rival JSW SteelBSE 1.62 % has a lower cost of production than Tata Steel if the latter's captive iron ore mine advantage is taken away, according to analysts. This is because the century-old Tata Steel suffers from legacy issues in production at its Jamshedpur plant and has more than required workforce on its payrolls.
Tata Steel India, with a capacity to produce 10 million tonne steel annually, has a workforce of 36,957, while JSW Steel, which produces 14.3 mt steel every year, has a workforce of only 12271 employees.
"Tata Steel is exploring ways on how to meet the current challenges," said another person, who did not wish to be identified. "It has a relatively higher percentage of manpower cost because of employee philosophies. However, it does not necessarily mean job cuts. The company will look at increasing the productivity of its assets."
The Indian steel industry is undergoing one of the worst phases in history. Influx of cheap steel imports from China, Japan and South Korea are hitting profitability at not only Tata Steel but also JSW Steel and government-run SAILBSE -1.66 %. This does not augur well for Tata Steel, whose UK business is already a lossmaking
operation for about a decade despite continuous restructuring.
"We believe the competitiveness of the domestic business is likely to come down gradually, while, uncertainty and volatility will continue in European operations. With a huge net debt of Rs 75,000 crore, the situation becomes all the more challenging," said Emkay Global analysts Goutam Chakraborty and Deepankar Kohli in a report.
The company, according to people in the know of things, is already keeping a tight leash on employee costs. "Certain posts are taking longer time to close as the firm is tight fisted. Negotiations over position on salaries are also taking time," said a recruiter on the condition of anonymity. There's a possibility of reduced annual bonuses as well, the person added.
Tata Steel India reported a profit of Rs 452.82 crore in the December quarter, half of what it had earned in the corresponding quarter last year. After including its global performance, the company reported a loss of Rs 2127.23 crore on a consolidated basis.
Source : economicstimes.indiatimes.com