Managing our financial capital

We have a robust financial management process that assesses the requirement of funds for sustainable business operations as well as for investments towards business sustainability and growth opportunities.

The funds required over business surplus and retained earnings are met by raising funds as per market conditions to reduce finance cost and having flexible terms, in line with the cyclical nature of the steel industry.

We work towards aligning our debt maturity profile to the long gestational nature of steel projects and maintaining a flexible capital structure, in line with the business needs. This results in savings on interest cost and ensures the desired liquidity levels. Foreign exchange risks are actively managed with adequate hedging.

The funds generated are allocated to strategic investments in subsidiaries, joint ventures and in capital assets. The surplus funds are invested in shortterm instruments. Deleveraging is one of our key focus areas. Internal cash flows generated from operations are used to reduce our debts as per our annual targets.

Further, our operational KPIs are compared with internal and external benchmarks to achieve best production, higher productivity and yields. The Company ensures that business operations are un-interrupted and are at an optimum level. We ontinuously undertake cross-functional improvement programmes under Total Quality Management (TQM) and Shikhar25 for operational efficiency, product mix optimisation, waste reduction and recycling, energy efficiency and procurement optimisation. Our innovative marketing initiatives and various ongoing digital programmes provide better customer connect, reach and higher realisations. These initiatives result in margin maximisation through cost optimisation, for the generation of positive cash from business operations.

We ensure that we have the appropriate level of capital for growth projects, and ample liquidity to support and protect our operations in all economic scenarios. In line with past strategies, the Company aims to balance its growth ambitions while keeping a healthy balance sheet.

Managing capital inputs and liquidity

The year under review witnessed stability in the economic condition with fewer business interruptions, improvement in market sentiments as the economy progressed on the path of recovery after severe interruptions due to the pandemic in FY 2020-21. Major inputs to the financial capital were as follows:

1. Internal accruals generated a free cash flow of ₹30,516 crore (after considering capex and dividend) which was primarily utilised for investments in Group companies, for funding NINL acquisition and for working capital support to our European operations
2. Short-term funds were raised from banks to the tune of ₹4,800 crore to support working capital and economise on interest costs
3. Gain recognised in financial statements from the amalgamation of Tata Steel BSL Limited with Tata Steel Limited - capital reserve of ₹1,761 crore (non-cash)
4. The operational improvement programs (Shikhar 25) have earned benefits to the business to the tune of ₹5,463 crore

Managing capital outcomes

The COVID-19 pandemic in FY 2020-21 necessitated a sharp focus on cash flows. The cash flow focus in our business processes has helped in optimising our working capital through better inventory management, faster collection from debtors and extended credit period from suppliers.

• The debt levels reduced marginally by the end of FY 2021-22. The Company had gross debt outstanding of ₹37,065 crore as on March 31, 2021 which has now reduced to ₹36,525 crore as on March 31, 2022. The cash generated was used for funding inorganic growth opportunities along with internal growth funding for capex.
• The Company has restarted its capital expenditure program across various business units like the Cold Rolling Mill and Pellet Plant in Tata Steel Kalinganagar, which are expected to be operationalised shortly and will be margin-accretive to the existing business. The Company incurred a capital expenditure of about ₹6,288 crore from the cash generated from the business.

Achievements

1. Maximisation of cash flows through continued focus on cash war room on a cross-functional basis. This allowed prioritisation of 80% of India’s capital expenditure on Kalinaganagar Phase II. The Company had good control over working capital in India in spite of significant increase in steel and raw material prices
2. Managing liquidity facilitated debt rationalisation and restructuring

Way forward

1. Deleveraging balance sheet through internal cash flows from the business through continuous improvement initiatives driven by cross-functional teams under Shikhar25 program
2. Aligning debt maturity profile to the long gestational nature of steel projects
3. Maintaining flexible capital structure in line with business needs
4. Allocating funds to efficient and value-accretive opportunities

Management of cash flows

During the year under review, the net increase in cash and cash equivalents was ₹450 crore as against an increase of ₹504 crore in the previous year. The increase in cash operating profits during the year was utilised primarily in working capital, payment of taxes, capital expenditure, higher dividend payments and strategic investments in Group companies for growth.