RISKS AND OPPORTUNITIES

Future-proofing our business

Favourable demand conditions, availability of skilled manpower and adequate iron ore reserves make India one of the most attractive regions globally for the steel industry.

However, volatility associated with sensitivity to economic cycles, long lead time for project execution, stringent norms around environmental clearances and regulatory approvals are ongoing concerns. Added to these are high cost of capital and complex logistics. This external context, coupled with the internal environment, forms the basis of our understanding of risks and opportunities.

Risk landscape and mitigation measures

Financial risks

Contraction in global and
domestic liquidity adversely
affecting availability and cost
of capital

Mitigation strategies

Tata Steel is deleveraging through internal cash generation and monetisation of non-synergistic assets. We have a well‑diversified liability profile and we raise funds from domestic and international bond markets as well as from the banking system. We consistently work towards increasing our debt maturity and opportunistically tap into pools of liquidity to reduce our financing costs.

Strategic Objectives

Capitals Impacted

Regulatory risks

Withdrawal of favourable trade measures such as minimum import prices, antidumping laws, countervailing duties and tariffs, trade restrictions may impact profitability

Stringent regulations and compliances resulting in liabilities and damage to our reputation

Non-renewal of mining leases compelling higher purchases from open market at higher prices, adversely impacting profitability

Building on the mitigation strategies for macroeconomic and market risks, we continue to invest in stronger customer relationships, distribution networks and brands that focus on value-added segments such as auto and retail, and help to strengthen our revenue profile.

We are investing in training and automated systems for facilitating compliances to all applicable regulatory norms. Efforts are undertaken to improve the efficiency and cost competitiveness of our operations, including investing in digitisation and automation, to improve our productivity levels.

Tata Steel has sought judicial intervention to secure lease renewals. We also participate in mining auctions to secure fresh leases. Alternative supply chains are also being developed to source raw materials at competitive prices.

Strategic Objectives

Capitals Impacted

SO1 - Industry leadership in steel

SO2 - Consolidate position as a global cost leader

SO3 - Insulate revenues from steel cyclicality

SO4 - Industry leadership in CSR and SHE

Macroeconomic and steel market risks

Slowdown in global growth, particularly in China, adversely affecting steel demand

Increasing competitive intensity in India, especially post the acquisition of steel assets by international steel producers under the Insolvency and Bankruptcy Code, 2016

Technology disruptions and shifting customer preferences to alternative materials adversely impacting earnings

Mitigation strategies

Tata Steel is enhancing its footprint in India, which is among the fastest growing steel markets in the world. We have built a strong marketing franchise through strong brands and relationships, which helps reduce exposure to business cycles.

As a preferred supplier to large auto customers in India, a large part of our sales is contractual and relatively more stable. We have a large retail business that leverages an extensive network of over 200 distributors and 12,000+ dealers and a strong portfolio of brands to sell branded steel across the country. This segment is relatively insulated from the international cycles and provides strong cash flows. We have a significant downstream portfolio and are also exploring new segments such as oil & gas.

Strategic Objectives

Capitals Impacted

Operational risks

Inadequate assessment of health of critical equipment leading to unplanned interruption of operational processes

Non-disposal of plant waste due to limited demand and storage space

Logistics constraints due to inadequate rail, road and sea infrastructure may lead to disruption in operations

Our dedicated Shared Services team focusses on advanced maintenance practices to improve plant availability and reliability. We have a dedicated R&D team that deploys innovative ways to reduce waste generation and commercialise alternative uses of waste material.

Tata Steel is working on developing logistics providers under various schemes of private sector participation in the Indian Railways, apart from developing additional deep sea ports and contracting with terminal owners at existing ports.

Strategic Objectives

Capitals Impacted

Safety risks

Non-compliance/delay in implementation of the provisions of safety laws and regulations, which may lead to stoppage of operations, damage to assets and loss of reputation

Tata Steel has a strong safety management system that covers employees, contractors, rail and road transport, equipment safety and emergency response. Regular audit and review of the safety measures are undertaken. Periodic safety trainings are conducted for employees, contractors and other relevant stakeholders.

Safety is a KPI for all employees in their performance management system.

Strategic Objectives

Capitals Impacted

Financial Capital

Intellectual Capital

Natural Capital

Manufactured Capital

Human Capital

Social & Relationship Capital

Community risks

Communities proximate to our operations live through significant socio-economic challenges while retaining a strong cultural heritage and an aspiration to overcome these challenges. The absence of an understanding of this duality in our communities and an inability to maintain a harmonious relationship with them would pose risk to our operations

Mitigation strategies

We are deeply committed to co-creating scalable solutions for the most endemic development challenges of our communities. We impact more than a million lives every year through proven programmes on health, education, livelihood generation, public infrastructure and basic amenities. Tata Steel has a deep engagement with the tribal community and actively promotes cultural and ethnic diversity.

We also recognise the rich tribal heritage at our operating locations and foster a relationship with our communities where we celebrate their history, culture and tribal identity.

Strategic Objectives

Capitals Impacted

Commodity risks

Raw material price volatility is an integral part of operations

Supply chain disruptions affecting availability and cost of raw materials

Steel prices have a strong correlation with commodity prices. Rising coal and iron prices are normally reflected in higher steel prices, which in effect act as a hedge against volatility.

In India, our captive iron ore mines as well as coal mines enable Tata Steel to partly derisk price volatility in these commodities.

In addition, we hedge certain commodities in the derivatives market to address short-term volatility.

Geographical and vendor diversification of critical commodity supplies help alleviate the risk of supply chain disruption. We have started conducting a sustainability risk assessment for our key vendors.

Strategic Objectives

Capitals Impacted

Information security risks

Breach of information security incidents leading to business disruption and damage to reputation

Non-compliance to IT legislations and regulations leading to penalties

Significant efforts have been made to increase awareness and invest in IT security and related compliances. Tata Steel has also invested in cyber insurance.

Strategic Objectives

Capitals Impacted

Climate change risks

Non-compliance to stringent environmental conditions leading to penalties, stoppage of operations and loss of reputation

Climate change related regulations and extreme weather events may disrupt operations and supply chain

Tata Steel continues to invest in upgrading existing technologies to minimise its environmental footprint. We closely monitor air quality, effluent discharge and other environmental parameters to ensure that they comply with all existing regulations. The focus on minimising carbon footprint is integrated within the capital allocation process and projects are required to calculate a carbon-adjusted Internal Rate of Return (IRR).

As a signatory to Task Force on Climate-related Financial Disclosures (TCFD), Tata Steel is actively working to understand the broader impacts of climate risks across its value chain and is exploring avenues to fundamentally reshape the business to make it both environmentally and economically sustainable in the long-term.

Strategic Objectives

Capitals Impacted

Capitalising on opportunities

Tata Steel has a continuous process of understanding and leveraging business opportunities.

Significant increase
in steel demand

India’s apparent steel use per capita stood at 70 kg in 2018, which is only one-third of the world average. This indicates that India has a huge potential for steel demand growth. Rapid urbanisation, increasing population, and infrastructure development, Government initiatives such as ‘Make in India’ will provide impetus to the growth in steel demand.

The plan for building smart cities, affordable housing, dedicated freight and high-speed rail corridors is expected to create significant demand for steel in the country. With leadership position in key market segments and world-class production facilities, Tata Steel is well poised to benefit from this large opportunity.

Evolving consumer needs leading to changing nature of steel consumption

With higher aspirations and affordability of a growing middle class, consumer needs are evolving. Along with new products, there is growing need for Services & Solutions that provide convenience. The demand for automobiles, white goods and other consumer goods is also increasing. Meeting this need will require new and value-added steel products. Tata Steel will leverage this opportunity enabled by innovative Services & Solutions offerings for consumers and a strong new product portfolio.

Climate change driving newer business models

Steel is an energy-intensive industry with a high level of CO² emission. There is growing regulatory requirement to reduce carbon emission. Tata Steel Jamshedpur is a national benchmark in CO² emission. There is further opportunity for Tata Steel to take a leadership role in reducing environment footprint. The Company has ventured into the steel recycling business to establish an alternate business model, leveraging the expected increase in availability of scrap in India, going forward. Environment-friendly business models such as these are expected to make us future-ready and will be a source of competitive advantage in future.

Opportunities arising from the changing technological landscape

With the growth in the economy, there is a large opportunity for new materials and applications for existing and new sectors. Tata Steel aspires to be a technology and innovation leader in the industry, and create new businesses in high-potential alternate materials (e.g., FRP composite and graphene). These new businesses are expected to contribute 10% of our revenues going forward. Along with new and enriched revenue streams, technology leadership will also enable Tata Steel to innovate, maintain cost leadership as well as provide differentiated offerings in existing businesses. There is also an opportunity to leverage the innovative potential of start-ups by creating external collaborations and partnerships. Tata Steel is also taking steps to capitalise on the large opportunity to move towards Industry 4.0 through digital-enabled business models.

Kalinganagar Steel Plant