Mumbai: Ratan Tata, chairman of Tata Steel, on Tuesday said the company needs to take "hard decisions" to restructure its operations as 2011-12 was a difficult year due to slackening of steel demand globally.
The comments came just a day after Tata Steel reporting a 89 percent plunge in its June quarter net profit to Rs 598 crore. In 2011-12, company's profits had gone down by 2.46 percent to Rs 6,696.42 crore.
Describing the financial performance of the company in the last quarter as "a matter of concern", he said that Tata Steel has been through the bad times before and it has the "fortitude to see itself through".
Tata was addressing the shareholders at the annual general meeting (AGM) here, his last as company chairman as he will be demitting office in December.
"We have to reduce cost and (be) more cost-efficient. We have to take hard decisions to restructure our operations. I believe there is inherent strength in the company to overcome present challenges," he said.
Tata further said that the company needs to identify and source raw materials more effectively for European operations, whose performance has been impacted significantly in recent times due to financial crisis in the Euro-zone economies and fall in steel demand.
"(We are) trying to make the European operations as efficient as we can. We are rationalising product mix, opening more markets... We are doing everything we can to go through the crisis," he said, while saying that the situation will remain like this for few more years.
"There is rather grim situation in Europe and UK. Steel demand is low... Pressure is on steel industry and steel mills are being closed due to fall in demand and oversupply. Margins are squeezed for steel industry," he said.
Stating that the economic crisis in Europe is having an impact on demand of steel and on prices of raw materials, Tata said that "no one could see this when we purchased Corus. I think it will remain like this for few more years."
Tata's statement assumes significance as few days back, rating agency Moody's had downgraded Tata Steel Europe's rating by one notch and kept the outlook for Tata Steel, including its Indian operations, to negative due to weak demand.
Tata Steel Europe accounts for more than 50 percent of the group's overall steel production capacity.
According to Ratan Tata, impact of the European crisis on Tata Steel can be offset if Indian economy recovers as steel will continue to be primary material for infrastructure building here.
"There is a downturn in India but if India itself recovers, the impact (of Europe) will more than offset," Tata said, adding that the steelmaker will be adding 2.9 million tonnes (MT) new capacity at Jamshedpur and first phase of the 6 MT plant in Odisha later this year.
He, however, stressed the need to expedite the expansion process of the company, particularly in India, to have "a bigger pie of the total share" in the steel industry.
Tata also said that the company has recently launched an open offer for Tata Sponge Iron to increase its stake over 50 percent and make the firm subsidiary of Tata Steel.
Meanwhile, Tata Steel's Group CFO Koushik Chatterjee told reporters, "European operations are undergoing restructuring in terms of cutting down head counts, cutting costs, etc and it will come to fruition going forward."
First Published: Tuesday, August 14, 2012, 20:57